As the result of strong leasing activity, New Jersey recorded 268,107 square feet of absorption—marking the second consecutive quarter of growth. While historically healthy leasing should have generated a stronger absorption figure, new available supply limited the positive momentum seen during Q3 2016. Most notably, Valeant Pharmaceuticals added 310,000 square feet of sublet space onto the market at 300 Somerset Corporate Blvd. in Bridgewater.

The state's average asking lease rate is $25.40 per square feet, $0.16 less than that of the previous quarter but just $0.41 below its peak rate set in 2007. The Waterfront submarket, however, recorded a historic $2.50 rent increase this quarter. Chatham/Millburn/Short Hills, at $31.52 per square feet, and Montvale/Woodcliff Lake, at $27.15 per square feet, also topped the list of the state's most expensive submarkets.

“While New Jersey maintains a steady average asking lease rate, the market witnessed a slight fall this quarter due to the onset of available sublet space and the removal of 5 Giralda Farms,” says Nicholas Hilton, senior vice president at CBRE. “However, submarkets with an abundance of top-quality product, such as the Waterfront, did experience significant rent growth.”

The Grow NJ Assistance Program continued to stimulate market activity this quarter. In Q3 2016, tax incentives were awarded to 68.8 percent of transactions over 50,000 square feet, or about 1.65 million square feet. With this incentive program sunsetting in July 2019, occupiers will be increasingly pressured to evaluate their real estate strategy prior to the eligibility end date.

CBRE is currently tracking more than 4.80 million square feet of active requirements.

“As 2016 winds down, leasing velocity is poised to maintain momentum and will likely break the 8 million-square-foot mark—a level of leasing that has not been recorded since 2007,” says Hilton.

Allergan Pharmaceuticals

SADDLE BROOK, NJ—So far this year, quarterly demand in New Jersey's office market reflects deal volumes that haven't been seen since before the recession, according to CBRE's Third Quarter 2016 New Jersey Office MarketView Report.

Q3 2016 marked the strongest quarter of leasing velocity since 2007, with 2.78 million square feet of new leasing that resulted from an unusual volume of large deals. The market recorded twelve new lease transactions greater than 50,000 square feet, totaling 1.9 million square feet and representing 68.2 percent of total quarterly velocity. Three submarkets surpassed the 450,000-square-foot velocity mark this quarter: The Waterfront (563,472 square feet), Morristown (510,886 square feet) and Route 287/78 Interchange (451,300 square feet).

“The most recent economic downturn forced transformational change in New Jersey's office market and created a “new normal” for quarterly leasing velocity that had lasted until recently,” says Leo Paytas, senior vice president at CBRE. “That has officially changed in 2016, as the market recorded historically healthy activity with pre-recession levels of demand for office product.”

Demand for class A space drove much of the activity recorded in the third quarter. Class A properties captured 85 percent of new leases completed during the quarter; notable given that class A properties account for only 55.5 percent of total office inventory. Allergan committed to 5 Giralda Farms in Madison (465,000 square feet), iCIMS signed a lease for a substantial portion of the available space at Bell Works/101 Crawford's Corner Road in Holmdel (342,375 square feet), and Mallinckrodt Pharmaceuticals will build out a new campus at 1405-1425 Route 206 in Bedminster (232,998 square feet).

As the result of strong leasing activity, New Jersey recorded 268,107 square feet of absorption—marking the second consecutive quarter of growth. While historically healthy leasing should have generated a stronger absorption figure, new available supply limited the positive momentum seen during Q3 2016. Most notably, Valeant Pharmaceuticals added 310,000 square feet of sublet space onto the market at 300 Somerset Corporate Blvd. in Bridgewater.

The state's average asking lease rate is $25.40 per square feet, $0.16 less than that of the previous quarter but just $0.41 below its peak rate set in 2007. The Waterfront submarket, however, recorded a historic $2.50 rent increase this quarter. Chatham/Millburn/Short Hills, at $31.52 per square feet, and Montvale/Woodcliff Lake, at $27.15 per square feet, also topped the list of the state's most expensive submarkets.

“While New Jersey maintains a steady average asking lease rate, the market witnessed a slight fall this quarter due to the onset of available sublet space and the removal of 5 Giralda Farms,” says Nicholas Hilton, senior vice president at CBRE. “However, submarkets with an abundance of top-quality product, such as the Waterfront, did experience significant rent growth.”

The Grow NJ Assistance Program continued to stimulate market activity this quarter. In Q3 2016, tax incentives were awarded to 68.8 percent of transactions over 50,000 square feet, or about 1.65 million square feet. With this incentive program sunsetting in July 2019, occupiers will be increasingly pressured to evaluate their real estate strategy prior to the eligibility end date.

CBRE is currently tracking more than 4.80 million square feet of active requirements.

“As 2016 winds down, leasing velocity is poised to maintain momentum and will likely break the 8 million-square-foot mark—a level of leasing that has not been recorded since 2007,” says Hilton.