Declining vacancies in Class B properties, along with increases in asking rents, suggests a healthy year is coming for New Jersey’s office market despite an otherwise indifferent quarter, according to Cushman & Wakefield.
The first quarter of 2018 in northern and central New Jersey started off slower than expected, due to delays in finalizing a number of large transactions and the return of several large blocks of vacant space to the state’s office inventory, Cushman & Wakefield said.
“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 closed in the quarter, and just two of them exceeded 50,000 square feet, said Jason Price, Cushman & Wakefield’s New Jersey research director.
However, renewal activity is remaining healthy, he said, as 11 tenants occupy more than 20,000 square feet and are committed to staying put. The largest among them was a 91,235-square-foot renewal by AXA Equitable Life Insurance in Secaucus.
According to Cushman & Wakefield, the northern and central markets in New Jersey struggled to gain traction during the quarter, with vacancy around 18.6 percent. The slow pace of large deal closings and the entry of big vacant blocks pushed net absorption into the negative for Q1. However, Class B assets, which are mostly tenants taking up space smaller than 10,000 square feet, saw net absorption in the quarter at 190,574 square feet. Class B vacancy declined to 16.7 percent, down from 18.5 percent during the first quarter last year.
Average asking rents continued to grow, as Class A space entered the marketplace even as Class B space tightened. 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 $32.86 per square foot, and Class B rents rose by 3.2 percent, to $23.74 per square foot.
Among markets, the Hudson Waterfront recorded an increase of 2.3 percent, to $45.21 per square foot, and the Morristown submarket increased 1.9 percent, to $30.34 per square foot.
A number of submarkets had improved vacancy during the quarter, led by the Upper 287 Corridor, which fell to 17.5 percent. The Morris Route 10/24 Corridor experienced a drop to 19.4 percent, Newark fell to 16 percent and Monmouth County ticked lower to 11 percent — the lowest level of any submarket in New Jersey.
The largest new deals signed during the first quarter:
- Lonza America, 74,659 square feet, 412 Mount Kemble Ave. in Morristown;
- Pro Custom Solar, 61,240 square feet, 3096 Hamilton Blvd. in South Plainfield;
- McLaren Engineering Group, 45,359 square feet, 530 Chestnut Ridge Road in Woodcliff Lake;
- Vitamin Shoppe, 28,200-square-foot expansion, 400 Plaza Drive in Secaucus;
- W2O, 25,000 square feet, 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.”