Central, Northern New Jersey Office Vacancy Rates Continue to Drop

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According to JLL, office tenants overwhelmingly preferred to locate their businesses within Northern and Central New Jersey, fueling nearly 1.4 million square feet in positive absorption of Class A product for the year.

Vacancy rates for the state's Class A office market declined a full percentage point in the past 12 months, falling from 25.1 percent at year-end 2014 to 24.1 percent this quarter. That represents the lowest vacancy rate throughout the Northern and Central New Jersey's Class A market since mid-2013.

Despite continued strong leasing activity in the final quarter of the year, the state recorded 80,546 square feet of negative absorption in the fourth quarter of 2015, with 152,893 square feet of positive absorption in the Class A market countered by 233,440 square feet of negative net absorption for Class B product.

"The state's high-end buildings emerged as the product of choice for office users during the past year, as companies increasingly promoted Class A work environments to help retain and recruit new employees," said Jonathan Meisel, Managing Director with JLL. "Accelerating gains in New Jersey's employment market will further position the office market on the road to recovery in the coming year. Approximately 55,000 jobs were created in the Garden State in 2015, representing the largest gain since 78,400 jobs were created in 2000."

The information/technology sector took center stage in the fourth quarter of 2015, accounting for 30.0 percent of the Northern and Central New Jersey office markets' total leasing volume this quarter. In the largest transactions signed this quarter, Vonage inked a 350,000-square-foot renewal at 23 Main Street in Holmdel. Professional and business services companies completed approximately 16.3 percent of the leases during the fourth quarter, surpassing banking/financial services firms, which rounded out the top three with 13.4 percent of leases signed.

Approximately 440,445 square feet of new construction was underway in the Northern and Central New Jersey office markets during the final quarter of 2015.The largest project under construction was a 185,000-square-foot build-to-suit at 67 Whippany Road in Whippany that will house MetLife Investments' new global headquarters upon its completion in mid-2016.

Highlights of the fourth quarter of 2015 include:

• Northern and Central New Jersey's overall vacancy rate remained unchanged from the third quarter at 24.6 percent. The state's overall vacancy rate has remained within a few percentage points of 25.0 percent for the past few years.

• Despite sustained strong demand, rental rate growth remained constrained in most of the state's office submarkets. The average asking rental rate for Class A space ticked only 0.2 percent higher from the third quarter to $27.30 per square foot. Year-over-year, the Class A rental rate declined 1.5 percent from $27.71 per square foot at year-end 2014.

• With an average rental rate of nearly $37.66 per square foot, the Hudson Waterfront maintained the highest Class A rent in the office market. Metropark's asking rental rate of $31.22 per-square-foot represented the highest Class A rents in Central New Jersey.

• The Metropark submarket remained one of the most active, where more than 350,300 square feet of Class A space was absorbed during the past year. Among the latest transactions completed was The New Jersey Turnpike Authority's leasing of the 205,000-square-foot former Hess headquarters building in Woodbridge. The Turnpike Authority will be relocating its operations from 581 Main Street, also in Woodbridge. The Metropark Class A vacancy rate subsequently slipped below 19.0 percent compared to more than 21.0 percent in the third quarter. The Metropark submarket registered the lowest Class A vacancy rate in Central New Jersey and the third lowest in the state after the Hudson Waterfront and Newark submarkets.