Real Estate Journal — 2017 Forecast — January 27 - February 9, 2017 — 17C
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M id A tlantic
2017 F orecast
New Jersey Office Market records one of its best years in recent history Cushman & Wakefield anticipates a ‘Stable’ Start to 2017
AST RUTHERFORD, NJ — 2016 was one of the best years in recent history for the New Jersey Office market, according to the 2016 office market re- cap released by Cushman & Wakefield . The firm also released its Q4 office market report, citing that the New Jersey office sector ended the year on a positive note, as the market remained stable after two robust quarters of improv- ing market fundamentals. New Jersey concluded 2016 with overall net absorption firmly in the black for the year. As vacancy fell in many of the prominent submarkets in the Garden State, specifi- cally within class A space, New Jersey’s rate has dipped two consecutive years. Meanwhile, asking rents, on average, have edged higher despite a recent increase in available sublease space. The Hudson Water- front, in particular, has hit the $40.00 p/s/f mark for class A direct space for the first time since 2002. “Despite some substantial dispositions by pharmaceutical corporations such as Bristol Myers Squibb and Novartis, the office market finished strong in 2016,” said Andrew Judd , Cushman &Wakefield’s New Jersey market leader. “While leasing activity didn’t match 2015’s recent historical high, the total for 2016 reached approximately 9.4 MSF, the second highest total in the last 10 years.” More than 12 leases greater than 100,000 s/f were inked in 2016, almost all of which were for class A space and most of which received tax incentives from the state’s GROW NJ program. “Companies took space at a rapid rate in the Hudson Waterfront, the I-78 Corridor, and Morris County, while the Bell Works campus in Holmdel was home to one of the larg- est leases of the year,” said Jason Price , Cushman & Wakefield’s research director, Tri-State Suburbs. “Tenants continued to opt for newer or updated buildings with ameni- ties either around urban-esque live-work-play environments or in premier office campuses in close proximity to major highways.” Q4, in particular, experi- enced flat net absorption as vacancy as a whole remained at 17.4%, its lowest point since 2007. Meanwhile, demand E
finished behind the vigorous totals of the last two quarters but reached the 2.0 million s/f mark for the seventh time in the last eight quarters. As a whole, class A vacancy in NJ held steady at 18.1%, but was down 240 basis points from a year ago. While absorp- tion during the last quarter of the year was flat, for the year, NJ recorded 3.2 MSF of net occupancy gains, the highest annual total in 15 years. More than 78% of the gains occurred within class A properties. Demand during the fourth quarter, while not reaching the vigorous totals of the previ-
ous two quarters, was healthy and spread throughout many key market segments. Lead- ing the way were the Hudson Waterfront, Bergen County, and Princeton/Rte. 1, each of which recorded an excess of 200,000 s/f of deal volume. Also experiencing healthy leasing were the I-78 Corridor, Mon- mouth County, Route 10/24, and Woodbridge/Edison. Just under 70% of Q4 leasing was concentrated within class A product. Q4 volume was fu- eled by the financial services, insurance, and computer/in- formation technology sectors, which combined accounted for
more than 47% of the total. As space tightened in some key market segments, New Jersey’s average direct ask- ing rental rate ticked higher during the final months of 2016. The increase was driven primarily by rising Class A asking rents in the Hudson Waterfront, Metropark, and the I-78 Corridor. Cushman & Wakefield an- ticipates that the New Year will kick off with some healthy demand, driven by some larger deals which are slated to close in January. High quality class A product with amenities in suburban
areas will experience steady demand as well. While occu- pancy should remain relatively steady throughout the year, there are some major dispo- sitions on the horizon which could prevent the market from improving further as a whole. Areas such as Princeton/Route 1, the Hudson Waterfront, and Morris County are poised to see temporary surges in vacancy as major tenants are slated to relocate from their respective locations in 2017. Meanwhile, expect asking rents in the key market segments to continue trending slightly higher due to the demand for class A space. n
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