JLL recently released its 1Q office leasing numbers which found that after trending upward during the second half of 2022, the Northern and Central New Jersey overall office vacancy rate maintained this trajectory into early 2023. The vacancy rate neared 26%, compared to 24.5% at year-end 2022. The combination of diminished leasing velocity and additional vacancies generated by consolidations maintained upward pressures on the vacancy rate. The higher Q1 vacancy rate was fueled by more than 1.8 million square feet of negative net absorption.
More than 95% of the negative absorption during Q1 was attributed to additional direct and sublet availabilities in the Class A market, where the vacancy rate climbed nearly two percentage points from 2022 to 29.2%. With more than one million square feet of negative net absorption, the Hudson Waterfront housed the largest volume of negative absorption in the state during Q1. Contributing to this negative absorption were several corporate vacancies at 480 Washington Blvd in Jersey City, which led to 491,830 square feet of direct space being marketed at this building in early 2023.
Flight-to-quality migration remained a theme of the Northern and Central New Jersey office market. The largest deal signed in Q1 involved Sanofi’s leasing of 260,000 square feet at the planned M Station West building in Morristown. The pharmaceutical company will be relocating its operations from Bridgewater in phases during late 2024 and early 2025. Sanofi will join Deloitte LLP, which moved into M Station East last year. Meanwhile, construction is wrapping up on a 120,000-square-foot building at 52-74 Speedwell Ave in Morristown that will house Valley Bank’s new headquarters.
Outlook
The first three months of 2023 were overshadowed by macroeconomic uncertainties. which provided headwinds to office demand. Despite the turbulent conditions, newly constructed or recently renovated buildings will remain on the radar screen of tenants with large space requirements. This was evidenced during Q1, as nearly 70% of leases greater than 10,000 square feet were signed in such assets. With higher-end buildings grabbing the majority of leasing market share, landlords will need to upgrade their assets to a level above their peers.
