The office market in North and Central Jersey is showing signs of increased vacancy rates as leasing volume continues to be restrained, according to JLL‘s fourth quarter 2019 office insights report.
After remaining unchanged for the past six months at 22.9%, North and Central Jersey’s vacancy rate was up to 23% in the fourth quarter. The overall rate was 40 basis points lower when compared to year-end 2018.
About 1.7 million square feet of deals were signed in the last three months of 2019, which brought the year’s total leasing volume to 7.9 million square feet. This is a 23% decline from 2018.
Most of the demand this year was generated by smaller leases less than 100,000 square feet, the report said. More than half of the deals completed in 2019 were in the 10,000-25,000-square-foot range, with less than 10% greater than 100,000 square feet. The largest office transaction in the fourth quarter was BYN Pershing’s 400,000-square-foot renewal at 95 Christopher Columbus Drive in Jersey City.
Class A vacancy in North and Central Jersey ended the year at 23.6% — the lowest point in eight years — compared to 25.3% in 2018.
More than 425,200 square feet of positive net absorption occurred in North Jersey’s Class A market in the fourth quarter, JLL said. Nearly half of the absorption was concentrated in the Bergen North submarket, where the vacancy rate was 27.1% compared to 35.5% in the third quarter. A big factor for the Class A rate was PIM Brands’ lease of 110,950 square feet in Park Ridge.
In Central Jersey, the Metropark Class A vacancy rate was up from 16.4% in the third quarter to nearly 20% in the fourth. Although there was an increase, the submarket recorded the second lowest vacancy rate in Central Jersey after the Parkway Corridor’s 16.2% vacancy rate. Fueling the rate was 136,760 square feet of negative net absorption.
In contrast, the Princeton Class A vacancy rate declined by 1 percentage point in the third quarter to 26.6%. The low figure was caused in part from Croda International’s 70,000-square-foot lease at 777 Scudders Mill Road in Plainsboro for its U.S. headquarters.
Class A average asking rents are expected to trend higher in the coming years as landlords are upgrading and renovating their buildings, JLL said.
The North and Central Class A rental rate for direct space was up by 3% from 2018 to $31.50 per-square-foot in 2019 — an all time high for the market.
At year-end, there was about 150,700 square feet still under construction in the market. Nearly three-quarters of the pipeline involved a mixed-use project in Hoboken by joint venture partners Toll Brothers City Living and Pinnacle Downtown. The development will include more than 100,000 square feet of office space, retail and residential.