New leases down, but renewals are strong in Q3, CBRE finds

New leasing was down more than 50 percent for the state in the third quarter compared with the same quarter last year, according to CBRE’s Q3 2017 Office MarketView Report. But strong renewal activity helped cut the decrease to 2 percent.

The market recorded only 1.36 million square feet of new leasing activity — down 51.5 percent from the same quarter last year, according to the Saddle Brook-based company.

The decrease in leasing velocity — a 25.4 percent drop from the second quarter and 23.6 percent below the five-year quarterly average — is the result of a lack of new leases of more than 100,000 square feet. Only six such leases were signed in the third quarter of 2016.

The health care and financial services industries drove velocity, accounting for more than a third of new leasing. The largest contributor was PDI Healthcare’s purchase of 400 Chestnut Ridge Road in Woodcliff Lake. The former New York company will occupy the entire building.

“The decline in leasing velocity this past quarter was not merely the result of a summer slowdown, as the year-over-year decline was even more pronounced,” said CBRE Executive Vice President Joseph Sarno. “Despite a lackluster quarter in terms of leasing, however, availability remained stable during the quarter, and several key markets saw significant improvements in Q3.”

A low volume of availability additions resulted in little movement for the third quarter. Availability is now at 20.5 percent, with a net absorption of 151,506 square feet.

Greater Monmouth County accounted for much of this positive absorption, recording 166,034 square feet.

Bell Works absorbed nearly 59,000 square feet of available office space. The Interstate 287/78 Interchange recorded the state’s lowest absorption figure — negative 284,890 square feet.

Availability remained stable during Q3 2017, with Montvale/Woodcliff Lake and Greater Monmouth County experiencing the largest improvements in availability.

The Northern New Jersey market continued to benefit from its connectivity to Manhattan, outperforming Central New Jersey during the quarter.

Decreased demand in the market has not yet pushed landlords to decrease their pricing positions, leaving the average asking lease rate stable at $25.97 per square foot.

New Jersey’s pricing has proven to be consistent through all market conditions, recording only an 8.5 percent fluctuation over the past 10 years.

“The New Jersey office market is poised to end the year with lower overall leasing activity than prior years, but in-line with historic averages,” said CBRE Senior Vice President Remy deVarenne. “We remain cautious about future demand, as there are fewer large requirements slated to come to market over the coming quarters.”