Combined, the office market in northern and central New Jersey registered a 21% vacancy rate, the highest level in more than four years. Currently, more than 32.1 million square feet is available on a direct and sublease basis.
Looking at each region separately, northern New Jersey fared a bit better. The class A vacancy rate there dipped slightly from 19.7% at year-end 2008 to 19.5% in Q1. Downtown Newark and the Hudson Waterfront submarkets both sported class A office vacant inventories in the single digits. For all classes, absorption was positive at 462,434 square feet. The class A office sector in the central portion of the state, meanwhile, hit its highest level since mid-2007 at 24%. Market-wide, absorption was negative at 366,779 square feet.
With companies hesitant about making moves in a down economy, Grubb predicts market activity will be dominated by space consolidations and lease renewals rather than significant expansions. Firms prefer to re-up at aggressive renewal terms instead of paying for a costly relocation.
Even though the investment market remains immobilized by financing constrains, the Garden State did witness some notable deals in the first quarter. Inland American Real Estate Trust acquired 55 Corporate Dr. in Bridgewater from a joint venture consisting of SL Green and Gramercy Capital for $230 million, or $343 per square foot.
The three-building, 670,000-square-foot class A office complex serves as the US headquarters for sanofi-aventis. In East Rutherford, CB Richard Ellis Investors purchased the Metropolitan Center from ING Clarion Partners for $60.8 million, or $144 per square foot. The 422,470-square-foot class A office building was just over 70% leased at the time of sale.
Sluggish demand has thumped the industrial market in northern and central New Jersey, which racked up 8.3 million square feet of negative absorption in Q1. The amount of untenanted industrial space reached nearly 12% in Q1, a steep climb from 9.2% in early 2008. The industrial vacancy rate has stood in double-digits for the past three consecutive quarters.
In particular, a swell of sublease space is holding down the marketplace. After hovering below six million square feet through early 2008, eight million square feet out of the 75.5 million square feet available in the industrial market consisted of sublease space in Q1. This represented the largest amount of available sublease space in five years.
However, the industrial market did see some significant deals in the first quarter. One of the largest was BlackRock's purchase of 140 Docks Corner Rd. in South Brunswick from a joint venture involving J.P. Petrucci and F. Greek Development for $42.5 million, or $73 per square foot. The 583,400-square-foot warehouse has been vacant since its completion in late 2008. In addition, Baker Properties picked up 500 Memorial Dr. in Franklin Township and 400 Commons Way in Rockaway from Rreef for $19.5 million, or $84 per square foot. The two buildings, totaling 231,630 square feet, were fully leased at the time of sale.
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