NJ Office Market Still Flat, With Pockets of Activity

PARSIPPANY, NJ-According to newly released data from Colliers International New Jersey, the office market is nearing a state of equilibrium, but pockets of activity may be skewing the data. For example, two large users have purchased headquarters space in Somerset County, taking them off the leasing market.

Oticon Inc. recently purchased a 162,000-square-foot building at 580 Howard Ave., tripling the size of its existing Somerset headquarters and consolidating its various offices into one location. In addition, SHI International Corp. is relocating from Piscataway through the purchase of the 420,000-square-foot building at 290 Davidson Ave., where it will occupy approximately half the space there, keeping the other half for future growth and leasing options to other tenants.

These transactions improve Central and Northern New Jersey’s availability and absorption rates statistically, but those large spaces were not realistic destinations for most office users and therefore have only a small impact on the actual leasing market.

Meanwhile, at 24.5%, the availability rate for the third quarter decreased was essentially flat from the previous quarter. And while average asking rents increased in six of 10 counties, they declined slightly overall to $22.84 per square foot, down from $23.08 per square foot last quarter.

“The economy is still struggling, which keeps tenants hesitant in signing off on new leases, but they are viewing space more often and aggressively, with a consensus in the market that we have either hit the bottom or are on our way to recovery, albeit a slow one,” says Matt Dolly, head of research for Colliers International New Jersey. “There is a definite flight to quality, with the more active tenants looking for the best space, although many landlords have started holding firm on rents and pulling back on concessions. If we’re not there yet, we are extremely close to being in a state of equilibrium.”

There is renewed velocity in the marketplace, agrees Cushman & Wakefield’s executive director, David Stifelman. “Historically strong markets like Parsippany and the Hudson Waterfront continue to see activity, albeit less absorption than in previous years,” he says. “Strong landlords continue to adjust to the market, while others experience more difficulty in their deal-making.”

Stifelman also notes that throughout the fiscal crisis, the commercial real estate in Northern New Jersey encountered several potholes. But with markets such as Morris County and the Hudson Waterfront historically driving tenant activity, C&W expects to see further movement over the next several quarters. Still, he says, “renewals and in-place expansions are likely to continue through year-end 2010.”

And while the central part of the state is exhibiting gradual signs of stability, the region is still plagued by surplus product. “The pharmaceutical giants have historically been the market drivers for this region,” says Stifelman. “However, with the recent merger activity, significant consolidations are still underway.”