EAST RUTHERFORD, NJ—After experiencing a set-back in demand and occupancy levels toward the end of last year, the New Jersey office market stabilized once again during the first quarter of 2015, according to first quarter research from Cushman & Wakefield.

The commercial real estate services firm's latest research findings show strong leasing with moderate progress across the state's northern and central counties.

“There were some deals taking longer to close, so some deals slated for the fourth quarter got pushed back to the first quarter,” C&W's Tri State Suburban research director, Jason Price, tells GlobeSt.com in an exclusive interview. “As far as the occupancy levels dropping, that not only had to do with a little blip in demand, but also notable space dispositions by large companies.”

“The New Jersey market has regained momentum with strong first quarter leasing totals,” says Ron Lo Russo, Cushman & Wakefield's president, NY Tri-State region. “Overall fundamentals reflect the local economy's modest, yet steady, improvement.”

In fact, Northern and Central New Jersey recorded more than 2.2 million square feet in lease transactions during the first three months of the year, a volume 22.0 percent higher than the fourth quarter of 2014 and the highest total since the fourth quarter of 2011. Leading the way were the Parsippany (328,000 square feet), Princeton/Route 1 (269,000 square feet), Woodbridge/Edison (155,000 square feet) and I-78 Corridor (133,000 square feet) submarkets.

Pharmaceutical, insurance and information technology firms drove this activity, with each of these industries leasing more than 200,000 square feet. The largest first-quarter transaction involved a 107,000-square-foot Princeton submarket lease by Solvay Pharmaceuticals at 504 Carnegie Center in West Windsor.

Activity in suburban office markets has picked up somewhat, even though the urban core markets remained strong, Price says. “You just have a lot of companies that have historically been in the suburbs looking for better space. There's a glut in the space in Morris and Bergen County especially right now, and even Somerset County has vacancy at just under 30 percent for us. The only kind of construction activity you're going to see are build-to-suits.”

Tenants inked eight new deals in excess of 50,000 square feet, including three in Morris County, where Securitas took 81,282 square feet (at 9 Campus Drive, Parsippany), Langan Engineering took 71,500 square feet (300 Kimball Drive, Parsippany) and Arthur J. Gallagher took 51,210 square feet (115 South Jefferson Road, Whippany). Deals between 10,000 sf and 30,000 square feet also helped drive activity, accounting for almost 29.0 percent of first-quarter volume.

“Despite the brisk activity, the New Jersey market did not experience a significant positive impact on net absorption, as a handful of larger first-quarter deals consisted of corporate sale-leasebacks and deals in which space was never on the market for lease,” Lo Russo noted. Additionally, 13 blocks of 30,000 square feet or more came onto the market during this time, including Great Atlantic & Pacific Tea Co.'s 217,000-square-foot space at 2 Paragon Drive in Montvale, and SHI's 212,000-square-foot space at 300 Davidson Ave in Somerset.

Still, overall net absorption was slightly positive for the quarter with almost 210,000 square feet in occupancy gains. While vacancy held steady at 20.1 percent, it remains slightly higher than it was one year ago (19.7 percent). Similarly, rents in most market segments remained relatively stable during the first quarter. Year over year, however, New Jersey's average direct asking rent has fallen 2.8 percent, due to higher-priced spaces being leased-up in top-tier submarkets like the Hudson Waterfront, Metropark, Princeton, and Morris Route 10/24.

One big concern in Price's mind is the potential for more companies to move out of New Jersey, dropping large blocks of space on the market. “Every time we think we see some progress, there's always that one quarter where we experience a setback,” he says.

Lo Russo concurs with Price's assessment. “Some additional mid-sized and large space sheds may impact market statistics through 2015 and keep the recovery's pace in check,” he says. “Yet significant deals in the immediate pipeline will keep things moving on the right track. All indicators point toward healthy demand here in the coming months.”

You can hear the complete interview with Jason Price in the audio player below.