New Jersey Office Leasing Keeps Improving

SADDLE BROOK, NJ-Leasing velocity in 2010 within New Jersey’s office market reached its highest point since 2007 in the third quarter of 2010, totaling 1.98 million square feet for the quarter and 4.84 million square feet year-to-date, finds CB Richard Ellis’ Third Quarter 2010 New Jersey Office MarketView report. According to the report’s findings, availability rates improved for the second consecutive quarter and net absorption closed the quarter at positive 185,606 square feet.

“At the close of the third quarter, leasing activity within New Jersey’s office market stood at 4.84 million square feet, just nine percentage points away from the total velocity recorded in all of 2009, a trend that has steadily been increasing over the past nine months,” says Jeff Hipschman, senior managing director for CBRE and head of its New Jersey operations. “As tenants continue to take advantage of pricing opportunities across the state, we expect leasing to continue its upward mobility as we enter into the fourth quarter,” he tells GlobeSt.com. “And, if the pace continues, we estimate that leasing velocity will exceed last year's totals by 40% at the close of the year.”

More specifically, leasing velocity reached 1.98 million square feet during the third quarter, a 51.7% increase from 2009 totals and a 9.6% jump above 2008’s year-to-date. Of this activity, 53.2% of the transactions occurred in Central New Jersey, where five of the six submarkets recorded improved leasing volume from last quarter. Submarkets that posted the highest leasing velocity included Rt. 287/Piscataway/Brunswicks (428,700 square feet) and Rt. 287/78 Interchange (287,600 square feet) with the Parkway Corridor and Morristown submarkets both posting just under 218,000 square feet.

Renewals accounted for 38.3% of total market activity, which was driven by pending lease expirations rather than new tenant demand. Additionally, the desire for high-quality office space continued in the third quarter, with 63.7% of overall leasing activity occurring in class A properties throughout the state. User sale activity also increased in the third quarter, illustrating that tenants are continuing to take advantage of unique pricing opportunities that exist in the marketplace.

New Jersey’s availability rate dropped slightly to 21.6% (33.93 million square feet), owing to a combination of leasing velocity and the removal of available space from the market. 28 million square feet of total direct space represents 17.8% of the state’s 21.6% overall availability rate--a drop of 41 basis points from the all-time high of 22% that was set in the third quarter of 2009. Submarkets with the lowest availability rates included Montvale/Woodcliff Lake (9%), the Waterfront (11.3%) and the Rt. 17 Corridor (12.7%).

As sublease availability declined to 3.8%, direct availability for class A and trophy assets outperformed the market at 14.9% and 12.9%, respectively. New Jersey’s asking rents in class A, B and C properties also continued to decline, dropping to $24.02 per square foot in the third quarter, which represents a 30-cent decrease from last quarter and a 77-cent drop from rates recorded this time last year. Despite lower overall rental rates, class A and trophy assets continue to command premium pricing, with average asking rates closing at $27.59 per square foot, a $3.57 increase over the state’s average, as trophy assets recorded an impressive $8.24 per square foot above New Jersey’s asking rates.

Net absorption totaled positive 185,608 square feet for the third quarter, pushing New Jersey’s year-to-date absorption to 43,786 square feet, as compared to the negative 893,634 square feet recorded in the third quarter last year. Submarkets with the highest positive net absorption for the quarter included the Palisades (347,300 square feet), Rt. 287/Piscataway/Brunswicks (274,300 square feet) and the Parkway Corridor (138,700 square feet).