FAIRFIELD, NJ-The office and industrial markets in Northern and Central New Jersey continue to weaken as corporate consolidations cut into demand, leaving behind a wave of vacant space. That was the finding of second-quarter research from Grubb & Ellis.
By midyear, the office availability rate in Northern and Central New Jersey had reached 22.5%, its highest level in six years. Tellingly, the class A sector is getting hit particularly hard, with a vacancy rate of 23%, up from 21.1% in the first quarter and 20% two years ago. Further, of the nearly two million square feet of negative absorption in Q2, 1.4 million square feet was class A space, a sign, say Grubb researchers, that companies are downsizing in an effort to reduce operating expenses.
Consolidations are expected to continue, with the banking and financial services firms along the Hudson Waterfront leading the way. Tenants, meanwhile, are likely to be swayed by aggressive renewal terms, including shorter lease commitments, offered by landlords rather than incur the expense of moving.
On the industrial front, the northern and central portions of the state racked up nine million square feet of negative absorption in Q2 on top of the eight million square feet of negative absorption in the first quarter. Consequently, the vacancy rate in Northern and Central New Jersey went from less than 12% earlier in the year to more than 13% in Q2.
Both portions of the state suffered, albeit in different ways. Up north, with a market dominated by older, lower-ceiling, manufacturing facilities, negative absorption hit 4.2 million square feet and the availability rate rose from less than 10% in early 2009 to more than 11% by midyear. In Central New Jersey, which has witnessed a wave of new big-box warehouse construction, the availability level stood near 16%, up from 14% in early '09, no doubt prompted by a negative absorption total of 4.8 million square feet.
For the remainder of the year, Grubb predicts that the overhang of sublease industrial space will continue to rise as companies consolidate their real estate holdings. Those additional availabilities will put downward pressure rental rates. On the plus side, the pipeline of new supply is expected to shrink as developers shelve new projects.