Office Conversions Reduce Inventory, Pull Northern, Central NJ Vacancy Lower

EAST RUTHERFORD, NJ—Leasing activity in the Northern and Central New Jersey office market continued to slow down in the first quarter of the year, according to research by Jones Lang LaSalle. Transactions covered 1.3 million square feet this quarter, a 40 percent drop from the 2.2 million square feet in deals signed in the final quarter of 2017. Smaller leases fueled most of the demand during the past year.

“Northern and Central New Jersey saw vacancy rates dip below 24 percent this quarter for the first time since early 2009,” says Stephen Jenco, JLL vice president and director of suburban tri-state office research. “The decline was predominately due to the removal of 1.7 million square feet of office product from the inventory. These former office buildings are on the road to being razed or converted to alternative uses.”

Around 40 percent of the office space removed from inventory was in the Parsippany submarket. The expected demolition of several buildings in the market pulled the class B vacancy rate down to 33 percent, compared with more than 40 percent at year-end 2017. This brought the Parsippany class B vacancy rate to its lowest level in three years.

Among the largest properties taken out of the inventory were two buildings totaling nearly 290,000 square feet at 1515 Route 10. The buildings are expected to be demolished to make way for a new Stanbery Development mixed-use project.

Approximately 489,730 square feet of office space were in various phases of development within the Northern and Central New Jersey office market during the first quarter of 2018. The 402,530-square-foot Ironside Newark redevelopment project accounted for most of the new construction. The latest project underway was a 42,000-square-foot, build-to-suit facility for GS1 US at Princeton South Corporate Center in Ewing.

Highlights of the first quarter of 2018 include:

• The Northern and Central New Jersey class A vacancy rate has remained above the 25 percent level since year-end 2016.
• The Northern and Central New Jersey class B vacancy rate retreated more than a percentage point from year-end 2017 to 21.2 percent, as most of the office buildings removed from the inventory were of class B quality.
• The Northern and Central New Jersey average asking class A rental rate for direct space climbed two percent from year-end 2017 to just above $30.20 per square foot, with most of the increase due to higher rents in the Waterfront submarket.
• The Hudson Waterfront continued to maintain the highest class A rent in the state, an average asking rental rate of nearly $44.60 per square foot in the first quarter. Metropark’s average asking rental rate of nearly $34.40 per square foot represented the highest class A rent in Central New Jersey.
• While a rising supply of sublease space boosted the Route 24 class A vacancy rate to 28.3 percent by year-end 2017, an uptick in demand pulled the vacancy rate below 28 percent three months later. Nearly 37,800 square feet was absorbed in the Route 24 class A office market, the largest volume of absorption in Northern New Jersey during the first quarter. Recent transactions included Lonza America’s lease expansion and extension totaling more than 77,000 square feet at 412 Mount Kemble Avenue in Morristown. The chemicals and biotechnology company will be vacating 48,580 square feet in Allendale as part of this expansion. In addition, W2O Group relocated from Morristown into 25,000 square feet at 100 Campus Drive in Florham Park.