Cushman & Wakefield: Solid Finish for NJ Office Sets Trajectory for 2019

EAST RUTHERFORD, NJ—The New Jersey office market experienced a strong finish to 2018, with solid occupancy gains and a notable leasing uptick, according to Cushman & Wakefield. Historically high class A asking rents were among the company’s fourth quarter research findings.

“While the office sector got off to a lackluster start in 2018, it made up for lost time during the balance of the year,” says Cushman & Wakefield’s Jason Price, director, Tri-State Suburbs Research. “During the fourth quarter, we saw the highest quarterly total for net absorption in more than two years, with 908,267 square feet of occupancy gains. Led by the Hudson Waterfront, Princeton/Route 1, and the Upper 287 Corridor, this marked the third straight quarter of positive net absorption in the marketplace and pushed the 2018 total to just over 700,000 square feet. The New Jersey office market now has boasted positive annual net absorption totals in three of the last four years.

These occupancy gains have pushed the state’s office vacancy rate lower, to 17.6%. During the fourth quarter alone, the rate dropped 50 basis points. Year over year, the Northern New Jersey rate ticked higher by just 40 basis points, to 18.8%, while the Central New Jersey rate dipped 50 basis points, to 16%.

“Leasing momentum during the last three months of 2018 yielded more than two million square feet in transactions for only the second time in the last two years,” Price says. “This activity was punctuated by 22 transactions in excess of 40,000 square feet, including six deals involving tenants opting to remain in place by renewing or renewing and expanding their commitments.”

Among the largest fourth-quarter deals, Phillips-Van Heusen opted to renew its 224,000-square-foot lease at 1001 Frontier Road in Bridgewater, while Merck sold its 1.2 million-square-foot campus in Whitehouse Station to UNICOM Global, leasing back 223,350 square feet. Other sizable transactions included TD Ameritrade’s 207,000-square-foot lease at 70 Hudson Street in Jersey City and Blackrock Financial Management’s 204,443-square-foot renewal at 1 University Square Drive in Princeton.

“The annual office new leasing total of 7.8 million square feet was 13.2% higher than last year,” says Cushman & Wakefield’s Andrew Judd, New Jersey market leader. “The Hudson Waterfront, I-78 Corridor and Newark were central players, with leases of varied sizes, and including both new deals and renewals.” The large-deal category experienced a notable jump year over year, with 17 transactions over 100,000 square feet in 2018 compared to just seven in 2017.

Office rents in Northern New Jersey and Central New Jersey rose by 4.1% and 4.4%, respectively, during 2018. “This can be attributed to tightening conditions in some key submarkets and to higher-priced class A space coming online,” Judd says. “At $33.69 per square foot, the New Jersey class A average rental rate is at a historical high, up 3.8% from one year ago.”

Judd added that upgraded and highly amenitized suburban office campuses outperformed the remainder of the marketplace in 2018 and should continue to do so as tenants vie for skilled workers in the currently tight labor market. “These properties will continue to charge a premium for space and boast higher occupancy rates on average,” he says. “While historically, New Jersey’s tenant makeup has been diverse, expect a handful of industries to persist in terms of fueling demand, including life sciences, financial, TAMI and manufacturing.”

Cushman & Wakefield expects New Jersey’s office market fundamentals to remain stable for much of 2019 in most market segments, driven by healthy tenant activity levels.