C&W: Despite 4th Quarter Slowdown, N.J. Office Market Shows Progress in 2014

EAST RUTHERFORD, N.J. - Jan. 6, 2015 - PRLog -- Despite a slowdown in progress during the fourth quarter, the New Jersey office market ended 2014 with stronger leasing volume compared to 2013 and overall positive absorption, according to commercial real estate services firm Cushman & Wakefield. Strong performance in the Hudson Waterfront, Meadowlands, Princeton/Route 1 and Woodbridge/Edison submarkets served as bright spots during the final months of the year.

"Slower-than-usual deal volume defined the fourth quarter in most submarkets," noted Kim Brennan, Cushman & Wakefield's New Jersey market leader. "Only a handful of regions experienced an uptick. That said, the overall results for the year show progress, albeit modest progress, for the New Jersey office market."

The office market recorded 8.1 million square feet of leasing during 2014, up 2.6 percent from 2013. During the fourth quarter, 1.86 million square feet of transactions closed. Northern New Jersey deals accounted for 62.0 percent of both the year's and quarter's totals.

This is partially due to activity along The Hudson Waterfront, which remains among the state's hottest submarkets. The most recent transactions include Charles Komar & Sons committing to 159,141 square feet at 90 Hudson Street, New Jersey City University leasing 69,348 square feet at Harborside II in Jersey City, and Regus and Jet.com both inking 40,000-square-foot leases at the newly constructed Waterfront Corporate Center III in Hoboken.

"More than 480,000 square feet of activity during the fourth quarter brought Hudson Waterfront leasing to 1.4 million square feet for the year - its highest volume since 2001," Brennan said. "Demand within the Meadowlands remained steady through 2014 as well, and that submarket posted its strongest year since 2011, with 395,625 square feet in leasing. This included almost 85,000 square feet in fourth-quarter deals."

The Princeton/Route 1 and Woodbridge/Edison submarkets accounted for 55 percent of the fourth quarter leasing activity in Central New Jersey. In Princeton, Blackrock's 67,000-square-foot expansion at 1 University Square represented the quarter's largest transaction. Accelerating deal volume in Woodbridge/Edison resulted in 170,000 square feet in leasing, including five deals greater than 10,000 square feet. This included Helsinn Therapeutics' 31,500-square-foot sublease at 170 Wood Ave. South in MetroPark.

Throughout the state, renewal activity was robust during the fourth quarter. Notable highlights included re-commitments by ISO Insurance (391,000 square feet) at Newport Office Center in Jersey City (545 Washington Blvd), Prudential Insurance (296,000 square feet) at 2 and 3 Gateway Center in Newark, and Novartis (153,734 square feet) at 200 Kimball Drive in Parsippany.

"Still, New Jersey's overall office vacancy edged higher by 0.6 percentage points during the fourth quarter to end the year at 20.1 percent, up 0.4 percent year over year," Brennan said. "This is mainly attributable to large blocks coming online throughout the state."

This included 435,000 square feet coming available at 70 Hudson Street in Jersey City, and 195,000 square feet entering the market with the delivery of 221 River Street in Hoboken (507,842 square feet). In Upper Saddle River, the entire former Pearson Education campus is available for lease (471,813 square feet), while in the Morristown submarket 374,000 square feet of former AT&T space came online at 340 Mount Kemble Avenue. As a result, Northern New Jersey experienced a 1.2 percentage point spike in vacancy during the fourth quarter, resting at 21.5 percent - the highest rate in more than a decade.

Central New Jersey, on the other hand, saw a nominal decline in vacancy (-0.2 percentage point) to stand at 18.1 percent. Still, the market saw the addition of 261,500 square feet at the former Merrill Lynch Campus (1700, 1750, 1800 Merrill Lynch Drive) in Ewing and 115,000 square feet at Bridgewater Hills Corporate Center in Bridgewater.

"Northern New Jersey absorption for the fourth quarter finished in the red, with 776,000 square feet of net space added to the marketplace," Brennan said. "On a more positive note, Central New Jersey as a whole posted more than 116,000 square feet net absorption for the quarter. And, for the year, the New Jersey market as a whole recorded 300,000 square feet of positive absorption."

Quarter-over-quarter, changes in the market's asking rents were minimal, declining slightly to $26.08 per square foot. Central New Jersey saw its direct average rate remain steady at $24.48 per square foot, while Northern New Jersey recorded a 1.6 percent decrease to $27.03 per square foot. Compared to one year ago, the overall New Jersey direct average rate has fallen marginally (by $0.21 per square foot). Class A direct rents followed a similar trend in both regions.

"While the fourth quarter performance was somewhat lackluster, the good news is that the market still moved forward year-over-year," Brennan concluded. "We are optimistic about 2015. Notable deals in the immediate pipeline suggest that the year will get off to a strong start. And with a limited amount of new speculative construction underway, the supply/demand balance is expected to improve steadily."