Economic headwinds are causing a pullback in the overall leasing market, according to CBRE‘s Q3 2023 Office Figures report for the northern and central New Jersey office markets released Tuesday.
At 839,000 square feet, total leasing activity during the third quarter was down 44% from the second quarter. As a result of lackluster leasing and new blocks of office space coming to the market, New Jersey posted negative net absorption of 288,000 square feet during Q3. On a positive note, renewals totaling 434,000 square feet were up 60% quarter-over-quarter, bringing the year-to-date total to 1.25 million square feet. Average asking rent of $31.77 per square foot is up 5% from the same time last year.
“Economic uncertainty continues to have an impact on the office leasing market,” Matthew Saker, CBRE senior vice president, said. “Bright spots do exist, with robust renewal activity and a flight-to-quality for new commitments, as well as improved sublet leasing volume with tenants reoccupying sublease space that resulted in a 3.2% quarterly decline in available sublease space. Also, the market’s average asking rent has remained steady despite the challenges. We anticipate the same scenario to continue through the end of the year, with glimmers of light starting to peak through early 2024.”
North Jersey had the highest leasing activity during Q3. Totaling 573,000 square feet, leasing in the submarket accounted for 68% of the quarterly total in the state. Most of the activity occurred on the waterfront, where 118,000 square feet of leasing activity took place — an 88% improvement quarter-over-quarter driven by a 40,000-square-foot sublease at 221 River St. by Hain Celestial Group and a 30,000-square-foot lease by International AIDS Vaccine Initiative at 95 Greene St. in Jersey City.
In contrast, Central Jersey experienced a 57% drop from Q2 leasing activity, ending Q3 at just 266,000 square feet. Princeton led Central Jersey leasing activity for the quarter, with 93,000 square feet, 29% above the five-year quarterly average. The 53,000-square-foot commitment from Dr. Reddy’s Laboratories at 600 College Road E. in Plainsboro was the largest new deal of the quarter.
On the investment sales front, high interest rates continued to impact activity. Total investment sales in Q3 totaled $124 million. The largest deals during the quarter were the $46 million sale of Plaza 6 at Harborside, a 245,364-square-foot property in Jersey City, to American Equity Partners from Veris Residential; and the $49.75 million sale of the Business Center at Edison, which is expected to be converted to industrial use.