CBRE on Tuesday released its Q1 2023 Office Figures for the northern and central New Jersey office markets, which illustrated the strain economic uncertainty and climbing interest rates have had on the office leasing market.
At 1.05 million square feet, total leasing activity during the first quarter was down 15% from Q4 2022 and 21% behind the five-year quarterly average. As a result, net absorption was negative 702,000 square feet, which pushed the market’s availability rate to 24.6% — 60 basis points higher than the previous quarter and 70 bps higher than the same time a year ago. Available sublease space reached a record high 7.9 million square feet and contributed to 21% of all available space in the New Jersey office market.
Bright spots during Q1 were climbing average asking rents, continued leasing at highest-quality buildings and robust activity in renewal transactions. During Q1, renewals totaled 547,000 square feet, up 17% from the previous quarter, while the average asking rent of $31.50 per square foot was up 2% from Q4 2022 and 11% during the same time last year.
“Concern over rising inflation, higher interest rates and bank failures have affected companies looking to make long-term real estate decisions,” Jeff Babikian, vice chairman, CBRE, said. “On a positive note, we are seeing a flight to quality in premier locations by a number of major space users. In fact, Class A leasing activity accounted for 86% of the quarter’s total.”
Northern New Jersey recorded 639,000 square feet and accounted for 61% of the overall total during the quarter, thanks in part to two large leases for more than 278,000 square feet. The largest lease was a 240,000-square-foot prelease at 66 Morris St., a new construction project in Morristown by pharmaceutical company Sanofi, followed by a 47,000-square-foot transaction at 400 Campus Drive in Florham Park. Both transactions reinforced that tenants are focused on high-quality space with premier amenities. Northern New Jersey average asking rents reached $33.18 per square foot, up 3% quarter-over-quarter and 14% year-over-year partially.
Central New Jersey’s leasing activity of 408,000 square feet was a huge improvement from Q4 2022’s figure of 221,000 square feet. The largest deal in central New Jersey was a 131,000-square-foot lease by Wells Fargo at a Class A office building at 194 Todd Ave. S. in Iselin. Central New Jersey’s average asking rent remained flat at $27.91 per square foot, but was up 3% from the same time last year.
On the investment sales front, headwinds due to high interest rates remained, bringing sales volume down 87% quarter-over-quarter. During Q1 2023, $69 million in sales transactions took place — the lowest recorded in over 10 years. The largest individual sale in Q1 was 700 Route 46 in Fairfield, a 48,000-square-foot Class B office building that sold for $7.63 million, or $159 per square foot.
