Smaller Leases Drive Velocity, While Deals in Excess of 100,000 Square Feet Prove Elusive

Although deal volume in 2017 down by 45 percent compared with one year ago, Garden State nearly doubles positive absorption

Leasing activity in the Northern and Central New Jersey office market was down approximately 45.0 percent in 2017 compared with deal volume recorded in 2016, according to JLL. The state registered 7.1 million square feet in transactions in 2017, compared with 12.9 million square feet in deals the year before.

“Much of the demand for office space in 2017 was fueled by smaller leases, rather than the 100,000-square-foot and larger transactions needed to put a significant dent in the office vacancy rate,” said Stephen Jenco, vice president and director of suburban tri-state office research. “Less than 5.0 percent of the leases completed in 2017 were larger than 100,000 square feet, compared with 15.0 percent of transactions during the same period last year.”

Despite the slowdown in leasing, after recording nearly 914,960 square feet of negative net absorption during the first quarter of 2017, absorption turned positive for the next three quarters as tenant requirements edged vacancies generated by consolidations. Approximately 606,500 square feet was absorbed in the Northern and Central New Jersey office market during the fourth quarter of 2017. This activity led to 957,770 square feet being absorbed in the office market during 2017, which nearly doubled the absorption recorded in 2016. The Northern and Central New Jersey overall vacancy rate subsequently declined from 24.5 percent in the third quarter to 24.1 percent at year-end 2017. Approximately 447,730 square feet of office space was in various phases of development within the Northern and Central New Jersey office market during the fourth quarter of 2017. The largest project underway was the 402,530-square-foot Ironside Newark redevelopment at 110 Edison Place in Newark.

Highlights of the fourth quarter of 2017 include:

• The Northern and Central New Jersey Class A vacancy rate ticked downward from 25.4 percent in the third quarter to 25.1 percent during the fourth quarter, in response to nearly 215,130 square feet of positive net absorption. This represented the third consecutive quarter of positive absorption in the Northern and Central New Jersey office market, as tenants continued to pursue amenity-rich Class A office buildings for their operations.

• After approaching $29.80 per square foot in the third quarter, the Northern and Central New Jersey average asking Class A rental rate for direct space slipped below $29.60 per square foot three months later. However, the Class A rental rate was still 1.4 percent higher from 2016. New availabilities with higher asking rents have been responsible for boosting the average Class A rental rate higher during the past year.

• With an average asking rental rate of nearly $42.60 per square foot in the fourth quarter, the Hudson Waterfront maintained the highest Class A rent in the state. Metropark’s asking rental rate of $35.00 per square foot represented the highest Class A rent in Central New Jersey.

• With nearly 150,350 square feet of negative net absorption, the Route 78 submarket posted the largest volume of negative absorption in the state’s Class A market during the fourth quarter. Contributing to this negative absorption was 105,000 square feet available at 3 Mountainview Road in Warren, N.J. Chubb Insurance formerly occupied most of this building. The Route 78 Class A vacancy rate subsequently climbed from 30.1 percent in the third quarter to over 31.0 percent at year-end 2017. Chubb Insurance had been acquired by ACE Limited in early 2016.

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JLL is a leader in the northern/central New Jersey commercial real estate market, with more than 1,000 professionals and support staff providing agency leasing and property marketing, tenant representation, industrial services, strategic consulting, occupancy planning, workplace strategies, project and development services, property and facility management, and investment sales/capital markets services to New Jersey's leading corporate tenants, investors and landlords. The firm, which assists clients from three full-service offices in Parsippany, Iselin (Metropark) and East Rutherford, also acts as a local service provider for JLL’s global and national corporate clients in need of real estate assistance in New Jersey. JLL’s New Jersey operations were honored by NJBiz magazine as one of its 2015 Best Places to Work in New Jersey.

About JLL

JLL (NYSE: JLL) is a leading professional services firm that specializes in real estate and investment management. A Fortune 500 company, JLL helps real estate owners, occupiers and investors achieve their business ambitions. In 2016, JLL had revenue of $6.8 billion and fee revenue of $5.8 billion and, on behalf of clients, managed 4.4 billion square feet, or 409 million square meters, and completed sales acquisitions and finance transactions of approximately $145 billion. At the end of the third quarter of 2017, JLL had nearly 300 corporate offices, operations in over 80 countries and a global workforce of over 80,000. As of September 30, 2017, LaSalle Investment Management had $59.0 billion of real estate under asset management. JLL is the brand name, and a registered trademark, of Jones Lang LaSalle Incorporated. For further information, visit ir.jll.com.