"There are very few industries expanding right now," says Matt Dolly, managing director of research and marketing for FirstService Williams. "As a result, more companies are leaning toward shorter lease renewals, rather than relocations." Yet certain sectors, such as education/day-care and medical, are active, he notes.
At the end of Q4, overall office vacancy stood at 18.4%, slightly up from the previous quarter's 18.2% level, but well above the year-ago number of 17.6%. The northern part of the state is faring a bit better than the central portion. In Q4, Northern New Jersey's vacancy rate was 17.1%, down from 17.2% in the previous quarter, yet up from 16.3% from the same period in '07. Central New Jersey, meanwhile, has a vacancy rate of 20.3%, which was higher than the 19.7% rate in Q3 and 19.4% in Q4 '07.
Sublease space is dwindling, according to the FirstService Williams report. Sublease opportunities in the state currently represent 17.4% of available space, decreasing from 18% in the third quarter and 17.4% a year earlier. Sublease space increased in six of 10 counties over the past 12 months.
Statewide average asking rents are $24.77 per square foot gross, up from $24.49 this time last year, but a decrease from $24.85 last quarter. Rents rose in the northern part of the state to $25.38 from $25.07 this time last year, but declined from $25.51 in Q3. Central New Jersey rents climbed to $24.04 from $24.03 in the third quarter and from $23.81 this time last year.
According to FirstService Williams, asking rents could further decrease as leasing volume continues to be restrained and consolidations put more sublease space back on the market. "In the fourth quarter, asking rents have started to level out in areas of the state that once experienced steady increases," Dolly says. "This, coupled with more flexible lease terms, is giving tenants a greater advantage in the marketplace that seems likely to continue as we move farther into 2009."
Also, spurred on by Urban Transit Hub Tax incentives, New Jersey may see an increase in back-office operations relocating from New York City. But for the time being, tenants would rather renew than relocate. The credit crisis has given many office users pause.
According to the FirstService Williams report, "Tenants are looking for shorter terms and/or more flexibility on the back end of their leases. With delays in securing corporate approval for lease execution, tenants are waiting as long as possible to get a handle on the market. Those with stable leases may look to renew early at today's rates and incentives."
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