Strong Tenant Demand in Suburbs Bolsters New Jersey Office Market

EAST RUTHERFORD, NJ—Leasing activity in Northern and Central New Jersey of more than 2 million square feet in the third quarter helped push year-to-date volume in those markets well ahead of last year’s pace, according to a report released by Cushman & Wakefield.

The commercial brokerage firm states that year-to-date leasing volume in Northern and Central New Jersey totas 6.2 million square feet—8.1% ahead of last year’s totals during the same period.

“Strong suburban tenant demand across the state countered some major blocks of space coming online as new vacancies,” Jason Price, Cushman & Wakefield’s director of Suburban Tri-State Research, says. “As a result, after hitting a recent vacancy low of 17.1% at mid-year, the rate ticked just slightly higher to 17.2%.”

Price pointed out that a handful of Central New Jersey submarkets have experienced notable increases in vacancy since mid-year, including Monmouth County, the I-78 Corridor and the Upper 287 Corridor. As such, the region saw 461,561 square feet of occupancy losses and a vacancy rate increase of 90 basis points (to 16.4%). In contrast, Northern New Jersey space absorption totaled more than 507,000 square feet, and the vacancy rate fell 40 basis points to a seven-year low of 17.9%.

“Compared to one year ago, the state’s vacancy rate across all classes has improved steadily, and year-to-date net absorption now totals over 1 million square feet,” Price says. “This is well ahead of last year’s annual total.”

Large lease transactions helped fuel growth in the third quarter. Five leases greater than 50,000 square feet—including two of more than 200,000 square feet—were signed in the third quarter. Everest RE Group announced its relocation to more than 313,000 square feet at Warren Corporate Center in Warren Township, while CIT Group will move from Livingston to 200,000 square feet at 340 Mount Kemble Ave. in Morristown.

Those two transactions accounted for 24.8% of the state’s third-quarter new deal volume. Another notable deal was Samsun’s decision to remain at its current location in Ridgefield Park, agreeing to a 235,000-square-foot renewal on Challenger Road.

“This marked the first time in three years that multiple new transactions of 200,000-plus square feet were inked in the same quarter,” notes Cushman & Wakefield’s Andrew Judd, New Jersey market leader.

He adds that while those deals were significant, it is the “steady churn” of small lease transactions that have kept brokers busy so far in 2019.

Since the start of 2019, users leasing less than 10,000 square feet have represented 34.5% of tenant demand across all asset classes, Judd says.

During the third quarter, a handful of market segments experienced notably robust activity. The I-78 Corridor, Parsippany, Morristown, Bergen County, and Princeton/Route 1 all saw at least 200,000 square feet of leasing. Conversely, demand was tempered in some market segments as the Hudson Waterfront and Woodbridge/Edison experienced a slight lull, according to the Cushman & Wakefield report.

New Jersey’s overall average asking rental rate continued to trend higher during the third quarter. The current $29.68-per-square-foot average, which represents a 1.4% year-over-year increase, has been driven largely by an increase in Class A asking rents. Quarter-over-quarter, Northern New Jersey Class A rates climbed $0.05-per-square-foot to $36.28-per-square-foot, while Central New Jersey posted a $0.02-per-square-foot decline to end the third quarter at $29.30-per-square-foot.

Looking ahead, Judd notes that the trend of upgraded, amenitized office buildings achieving higher occupancies and stronger demand will continue as companies attempt to retain and lure new employees in the current strong job market.

“This, combined with the expected positive state economic trending, is keeping landlords of Class A assets bullish—we may see them further raise asking rents in some cases,” Judd says.

For the remainder of 2019, Cushman & Wakefield states in the report that it anticipates occupancy to remain steady, with no substantial vacancies projected to come online until early 2020.