Jonathan Meisel, managing director, Jones Lang LaSalle

EAST RUTHERFORD, NJ—Following a sluggish first half of the year that was defined by 235,610 square feet of negative net absorption, a rebound in leasing velocity led to more than 1.5 million square feet of positive net absorption in the Northern and Central New Jersey office markets during the third quarter, according to new research by Jones Lang LaSalle.

JLL says the overall vacancy rate declined from 24.4% at mid-year to 24% in the third quarter—its lowest level since early 2009.

“Information and technology clients have ramped up their presence in the Northern and Central New Jersey office markets,” says Jonathan Meisel, JLL managing director. “While banking, financial services sectors and pharmaceutical and life sciences industries have historically accounted for a large portion of office demand, information and technology sectors made up nearly one-third of leasing activity during the third quarter of 2016, compared with less than 10 percent of transactions one year ago.”

More than 80% of the 1.5 million square feet absorbed in the third quarter was recorded in the state's class A office market as companies sought this high-end space for their operations. The class A vacancy rate retreated 30 basis points to 24.1%.

Contributing to the latest uptick in deal volume, iCIMS signed for 350,000 square feet at the mixed-use development Bell Works site in Holmdel; while iconectiv took 115,000 square feet at Somerset Corporate Center Blvd. in Bridgewater. Proximity to Manhattan and a skilled workforce, replenished by graduates from the state's universities, are expected to keep New Jersey on the radar of growing high-tech companies.

“While demand for class A space in mass-transit oriented submarkets had previously generated headlines, suburban-centric markets garnered the recent spotlight as submarkets including the Interstate 287, Monmouth County and Route 24 each posted more than 200,000 square feet of positive absorption in the third quarter,” says Stephen Jenco, vice president, Suburban Tri-State Research with JLL. “Competitive rental rates fostered this flight-to-quality migration.”

Approximately 170,445 square feet remained in various phases of construction during the third quarter, including build-to-suit facilities for Zoetis in Florham Park and Fox Rothschild in Morristown. MetLife's 185,000-square-foot building at 67 Whippany Road in Whippany was recently completed, as was a 130,000-square-foot, build-to-suit class A building for NRG Energy at 804 Carnegie Center in Princeton.

Highlights of the third quarter of 2016 include:

Northern and Central New Jersey's overall vacancy rates declined to 24% in the third quarter, a decrease of 1.6% (or 60 bps) compared to 24.4 percent the previous quarter. The state's overall vacancy rate was 24.6% one year ago.
The Northern and Central New Jersey class A average asking rental rates for direct space dropped $0.06 from the previous quarter to $28.04 per square foot. Year over year, the state's class A rental rate inched less than one percent higher.
With an average asking rental rate of nearly $38.37 per square foot in the third quarter, the Hudson Waterfront continued to maintain the highest class A rent in the office market. Metropark's asking rental rate above $31.00 per square foot this quarter represented the highest class A rent in Central New Jersey.
With 450,550 square feet of positive net absorption, the Route 24 submarket boasted the largest volume of absorption in the Northern and Central New Jersey class A office market. Driving this absorption was Allergan Sales's leasing of a 431,495-square-foot office building at 5 Giralda Farms in Madison for its new US headquarters. The Dublin-based pharmaceutical company was recently awarded a 10-year, $58.2 million Grow New Jersey award to consolidate its Bridgewater, Jersey City and Parsippany offices to Madison. The Route 24 class A vacancy rate plunged six percentage points from mid-2016 to less than 26 percent in the third quarter, marking the lowest level in two years.
Within Central New Jersey, a combination of leasing and user sales activity collectively fueled 245,200 square feet of positive net absorption in the Interstate 287 submarket during the third quarter. This represented the largest volume of quarterly absorption in this submarket since the fourth quarter of 2014. The Interstate 287 class A vacancy rate plummeted from nearly 24% in mid-2016 to 19 percent. Contributing to the lower class A vacancy rate was Sysco Guest Supply's leasing of nearly 71,940 square feet at 300 Davidson Avenue in Somerset. On the sales front, Prinston Pharmaceutical purchased 700 Atrium Drive in Somerset and will use the 183,925-square-foot building for its operations.

Instant Insights /

Surging Class A Demand Pulls Northern, Central New Jersey Vacancy Rates Lower

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