By Al Barbarino
New Jersey’s office market logged an uninspiring third quarter, with nearly one million square feet of negative absorption and leasing dominated mostly by small deals and renewals, a report from Jones Lang LaSalle shows.
The 992,232 s/f of negative absorption wiped out the 145,506 s/f and 633,441 s/f of positive absorption seen in the first and second quarters, respectively, for a yearly net of 213,285 s/f in negative absorption.
Despite shifts in quarterly absorption, the overall picture has been one of flatness in the market, as evidenced by vacancy rate stability over the last two years, Steve Jenco, JLL’s director of research for the suburban tri-state region, told Real Estate Weekly.
“We’re stuck in a neutral gear with no definitive direction,” Jenco said. “You can look at it as the glass being half full or half empty. We haven’t seen several quarters of 1 million square feet of negative absorption, but on the flip side we haven’t seen several quarters of 1 million square feet of positive absorption.”
As the unemployment rate reached its highest level in three decades at 9.9 percent in August, companies were reluctant to expand, with some large firms consolidating, creating the surge in negative absorption.
Several national and international unknowns – the election, crisis in Europe, and slowdowns in Asia – are also “weighing on corporate minds,” making it difficult to predict whether Jersey will be able to bounce back in the fourth quarter, Jenco said.
Almost 59 percent of total demand (renewals, extensions, new leases) was made up of renewals in the third quarter. Among them: PSE&G’s 825,000 s/f at 80 Park Plaza in Newark; Novartis Pharmaceuticals’ 160,000 s/f at 180 Park Ave. in Florham Park; and Barnes & Noble’s 73,626 s/f renewal at 120 Mountainview Boulevard in Basking Ridge.
Small deals (roughly 5,000 to 25,000 s/f) accounted for 60 percent of new leasing, made up mostly of what Jenco called up-and-coming or medium-sized firms.
The two largest leases occurred at Metropark’s Metrotop Plaza II – accounting firm Eisner Amper’s 87,000 s/f lease, and Hatch Mott MacDonald’s 81,000 s/f – which reached 100 percent occupancy.
The Parkway Corridor submarket in the Metropark area was a diamond in the rough, with 180,000 s/f of positive absorption and a vacancy rate that fell to 23.9 percent, the lowest since mid-2009.
But two-thirds of the state’s submarkets – including Princeton, Lower 287, Route 24, Meadowlands, the Brunswicks, 280 Corridor and Bergen County – logged negative absorption; and the total vacancy rate increased 0.6 percent to 25.6 percent, the highest since the third quarter of 2009.
High-priced class-A availabilities in the Brunswicks, Meadowlands and Waterfront drove average rents up slightly; high-priced leases at the Metrotop Plaza II drove asking rents in the Parkway Corridor down $1.00 to $27.02 psf; but rates fell more steeply in Princeton, Lower 287, Route 24 and Central Bergen, where less expensive spaces hit the market.
Landlords are “continuing to be aggressive, which makes sense given the current market conditions,” by offering competitive concession packages to credit worthy tenants, in effect creating relative stability in rental rates, Jenco said.