Healthy Class B Activity, Rising Rents Highlight 2018 Start to NJ Office Market — Cushman & Wakefield
EAST RUTHERFORD, N.J., April 4, 2018: Declining vacancies within Class B properties and market-wide increases in asking rents proved to be the two most-encouraging indicators amid an otherwise indifferent quarter in the Northern and Central New Jersey office market, according to Cushman & Wakefield. The first quarter of 2018 started off more slowly than expected, due in part to unexpected delays in finalizing a number of large transactions, combined with the recent return of several large blocks of vacant space to the state’s office inventory.
“While overall quarterly demand was down from previous quarters, market watchers were pleased to see asking rents in Class A assets reach record levels,” said Andrew Judd, Cushman & Wakefield’s New Jersey Market Leader. “Yet at the same time, the market sustained most of its year-to-date occupancy losses within Class A assets situated in four localities — the Hudson Waterfront, Bergen County, the I-78 Corridor and the Princeton/Route 1 Corridor.”
Only five new leases greater than 25,000 square feet (sf) closed during the quarter, and only two of those exceeded 50,000 sf, noted Jason Price, Cushman & Wakefield’s New Jersey Research Director. Yet renewal activity remained healthy, he said, as eleven tenants occupying more than 20,000 sf committed to staying at their current locations. The largest among them was a short-term, 91,235-sf renewal by AXA Equitable Life Insurance in Secaucus.
The Northern and Central New Jersey office market struggled to gain traction during the quarter, with vacancy ticking higher to 18.6 percent, a level 70 basis points (bps) above one year ago. The lethargic pace of large deal closings and the entry of some substantial vacant blocks combined to push net absorption into negative territory for Q1. Class B assets, fueled by tenants smaller than 10,000 sf, saw net absorption for the quarter finish at 190,574 sf. As a result, Class B vacancy declined 50 bps since year-end, to 16.7 percent. This category’s vacancy rate now stands at 16.7 percent, down from 18.5 percent during the first quarter last year.
The average asking rental rate continued to tick upwards, as higher-priced Class A space entered the marketplace and the Class B office market tightened. This dynamic pushed Class B rents nominally higher since last quarter. On a year-over-year basis, asking rents were up across all property types. Class A rents rose over that period by 5.5 percent to a highest-ever level of $32.86 per square foot (psf), while Class B rents climbed 3.2 percent to $23.74 psf. The Hudson Waterfront recorded a quarterly increase of 2.3 percent, leading all submarkets statewide at $45.21 psf. The Morristown submarket increased 1.9 percent, to $30.34 psf.
A number of submarkets experienced improvements in vacancy during the quarter, led by the Upper 287 Corridor, where the level fell 270 bps to a recent low of 17.5 percent. The Morris Route 10/24 Corridor experienced a 60 bps drop to 19.4 percent, Newark’s rate fell 30 bps to 16.0 percent, and Monmouth County’s rate ticked lower by another 10 bps to 11.0 percent, the lowest level of any major New Jersey submarket.
While quarterly demand totaled only 1.3 million sf, down from previous quarters, some submarkets continued to experience healthy new leasing activity throughout the quarter. Fueled by the life sciences company Lonza America’s 75,000-sf lease, Morristown experienced the largest quarterly rise in leased space, marking a recent quarterly high. Monmouth County, the Meadowlands, and the Upper 287 Corridor also recorded quarter-over-quarter increases in deal volume.
Here are the largest new deals signed during the first quarter:
- Lonza America’s74,659-sf lease at 412 Mount Kemble Avenue in Morristown
- Pro Custom Solar’s 61,240-sf lease at 3096 Hamilton Blvd. in South Plainfield
- McLaren Engineering Group’s relocation from Rockland County in New York to 530 Chestnut Ridge Road in Woodcliff Lake, taking the entire the 45,359-sf building
- Vitamin Shoppe’s 28,200-sf expansion at 400 Plaza Drive in Secaucus
- W2O’s 25,000-sf lease at Park Avenue Corporate Park in Florham Park
“First quarter velocity may have been modest, but a handful of large transactions are anticipated to close in the second quarter,” Price said. “This will bolster the market’s new leasing figures and should help propel net absorption into the black once again. We’re also expecting vacancy as a whole to stabilize over the next few quarters. And if the economy remains on its current trajectory, we foresee continued, overall inclines in asking rents as well.”
Price further noted that Newark’s 110 Edison Place is being constructed on a speculative basis and should deliver before the end of the year. Mars Incorporated accepted state incentives and is expected to occupy more than 110,000 sf at the building, which will bolster Newark occupancy levels upon completion.
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