FAIRFIELD, NJ-Third-quarter reports from Grubb & Ellis indicate the office and industrial markets in Northern and Central New Jersey remain burdened by the recession. Negative absorption, although moderating a bit, continues to put a drag on both property sectors.
As of the third quarter, the percentage of vacant office space in Northern and Central New Jersey hit 23%, its highest level since year-end 2002. More than 35.2 million square feet of direct and sublet space was available compared to 30.6 million square feet a year ago. Although negative absorption tallied up to 690,700 square feet in Q3, the sum was nearly two million square feet in the previous quarter. That moderation, Grubb researchers assert, may indicate that companies have finished shedding their excess real estate holdings.
There are some green shoots in the outlook, however. The Newark CBD, Hunterdon/I-78, Monmouth East, Princeton, Route 18/8A Middlesex and Union Area submarkets all registered positive absorption in the third quarter. Meanwhile, the construction pipeline has come to a near halt, with just 532,000 square feet of new construction coming out of the ground, some of it the build-to-suit variety. This dearth of new construction, combined with continued difficulty in accessing capital, means that existing available space will be absorbed once the market turns around, the Grubb reports predict.
Similar trends were found in the industrial market in Northern and Central New Jersey. After racking up an astounding nine million square feet of negative absorption in Q2, negative absorption in the most recent quarter was a relatively modest 3.8 million square feet, the lowest volume of negative takedown since the fourth quarter of 2008.
The availability rate skirted under 14% at 13.9%, up from 13.3% in the second quarter. Vacancies in Central New Jersey--where demand for big-box warehouses resulted in a surge of new construction during the past few years--climbed to 16.3%, while Northern New Jersey's availability reached 11.7%, up from 11.1% in the second quarter.
At the Exit 8A submarket, negative absorption amounted to 844,100 square feet, the largest negative quarterly tally in Northern and Central New Jersey. One exit away, at Exit 7A, demand for big-box warehouse space led to 241,660 square feet of positive absorption, the highest in-the-black total.
As with the office market, construction levels are down in the industrial market with currently less than 220,000 square feet under construction. Overall, Grubb researchers assert that the waning amount of negative absorption may be a positive sign. Additionally, with virtually no new development on tap to compete with vacant space, the market is not in danger of overbuilding.