C&W: Office Market Stays Sluggish in Q1

PARSIPPANY, NJ-Office demand continued "sluggish" throughout northern and center New Jersey in the first quarter of 2013, according to Cushman & Wakefie.d

There was negative absorption of 633,792 square feet in January-March period. While 1.75 million square feet was leased, more large blocks of space came online.

The vacancy rate for Class A office space in Morris County rose to nearly 30.9% in the first quarter of the year, according to Cushman & Wakefield. That was up 3.3% over the same period a year ago.

Northern New Jersey had less leasing activity than a year ago: 800,000 square feet of space taken, compared to 932,447 square feet of deals  closed by this time. in  2012. Central New Jersey fared better, with more than 900,000 square feet of leasing volume during the first quarter, its highest total in a year.

“Activity has been spread throughout much of the state thus far in 2013, with seven submarkets exceeding 100,000 square feet of transactional volume,” Medina said. “The Route 10/24, Woodbridge/Edison and Princeton submarkets are the most active currently.”

Pharmaceutical and financial services firms drove first quarter leasing, accounting for 45 % of new transactions. “Notable pharma deals were completed by Covance, Dr Reddy's, Otsuka and Celgene, all of which took place in central New Jersey,” Medina noted. “Financial services firms also have been active, with large transactions involving Cenlar Federal Savings Bank and The Bank of Tokyo-Mitsubishi UFJ, Ltd.”

Overall vacancy in northern Jersey edged higher by 0.8 percentage points over the past three months, and now stands at 19.1%. The rClass A vacancy rate rose more sharply, up 0.9% to 21.4% since year-end 2012.

Vacancy stayed flat in central New Jersey, at 20.3%. In fact, Class A vacancies in that market dipped to 22.3 %, from 22.9% at the end of last year

Asking rents for Class A space in the northern part of the state rents rose 3.4% from a year ago, as higher-priced space came online in the Hudson Waterfront and Morris County.  The average asking rate is now $28.85 per square foot,

Central New Jersey's Class A asking rents fell slightly since the year ended, dipping $0.17 per square foot to $25.45 per square foot. This was due, in part, to some higher-priced spaces in Princeton leasing up during the first quarter, according to C& W.

“Modest job growth has yet to generate substantial space requirements for corporate New Jersey,” Medina noted. “We expect the pace to pick up through the year; however, our state has and will continue to lag behind other parts of the country in job recovery. As such, the office market likely will continue on its current, sluggish pace through the coming months as we wait for a real employment uptick.”

In Morris County's Parsippany – which is, by itself, the state's third-largest office market –  vacancy has stuck stubbornly around the 30% mark for the past three quarters.

Other communities in Morris  with significant office space availability include Florham Park, Morris Plains, Morristown, Montville and Morris Township.

The county's suburban office stock is aging, with the large majority of its total 16 million square feet built in the 1980s and '90s.

More than two dozen corporate giants remain based in the county – but the consolidation and contraction of the pharmaceutical industry, which had been a bulwark, hit the office market hard over the last five years. Right now, the most hopeful talk concerns “adaptive re-use” projects. (See story in Real Estate Forum).

After a long period of indecision, Bayer has decided that it will remain in Morris County. It is relocating to completely renovated offices in Whippany. However, this raises the issue of how to re-tenanting Bayer's old headquarters in Morris Township and another office in Montville.,

C&W calculated the vacancy rate for Class B property in Morris County to be 20.6%, and for Class C, 24.2%.

Passaic County in has the highest vacancy rate for Class A space of any in northern New Jersey, C&W's report indicates: 33.9 %. The county has a total of  only 785,000 square feet total of Class A space.

Morris County's overall office vacancy rate is highest of any county at 26.4%, and Passaic County is second at 22.1%

Class A vacancy rates in other counties are: Bergen, 23.6 %; Essex, 20.2 %; and Hudson, 11.9%.