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News release

EAST RUTHERFORD, NJ

JLL Reports Demand for New Jersey Office Space Overtakes Supply

After cresting in 3rd quarter of 2013 at 770,000 SF, wave of negative net absorption drops to less than 100,000 SF in 1st quarter of 2014


EAST RUTHERFORD, NJ, April 2, 2014 — Although New Jersey saw overall office vacancy rates tick higher since the end of 2013, the volume of negative absorption that has characterized the state’s office market over the past year seems to have lessened, signaling that demand may have finally overtaken the amount of additional supply added to the market.

The wave of additional office space added to the Northern and Central New Jersey available supply this past year crested in the third quarter of 2013, with the state posting more than 772,000 square feet of negative net absorption. Less than 100,000 square feet of negative net absorption occurred during the first three months of 2014. Furthermore, only seven out of the 20 Northern and Central New Jersey office markets posted negative absorption figures in early 2014.

“The lack of sustained job growth continues to cast a shadow over the New Jersey’s economy,” said Robert Kossar, executive managing director and market director for JLL’s New Jersey and Long Island operations. “The state’s overall office vacancy rate inched higher during the second half of the year in response to additional vacancies generated by corporate rightsizings.

Accelerating job growth in vital sectors — notably professional and financial services — will be crucial to jumpstarting the state’s office market in the coming year. A strengthening employment market will translate into the need for additional office requirements.”

Approximately 2.1 million square feet in leasing transactions were recorded in the Northern and Central New Jersey office market in the first quarter of 2014, just below the 2.3 million square feet posted in the previous quarter, but more than 400,000 square feet, or 23.5 percent, higher than the first quarter of 2013. Nearly one-half of the recent leasing velocity involved companies within the professional/business, information/ technology and life sciences sectors.

Approximately 1.6 million square feet of space was under construction in the Northern and Central New Jersey office markets in the first quarter, compared to 1.4 million square feet in development one year earlier. Nearly three-quarters of the early 2014 development consisted of build-to-suit endeavors for such companies as CommVault Systems in Eatontown, Pearson Education in Hoboken and Prudential Insurance in Newark.

Highlights of the first quarter of 2014 include:
•    The Northern and Central New Jersey overall vacancy rate increased to 25.0 percent in the first quarter of 2014, compared with 24.9 percent at year-end 2013. The overall vacancy rate, however, remains little changed from the vacancy rate of 24.6 percent one year ago.
•    Despite the transitional market conditions, New Jersey logged gains in office rents during the past year, as new availabilities with higher asking rents were introduced to the market. The Garden State’s Class A product registered an average asking rental rate of $27.64 per square foot in the first quarter of 2014, an increase of $0.69 per square foot from one year ago. Class B rents ticked $0.05 higher from one year ago to $20.60 per square foot in the first quarter.
•    With a Class A vacancy rate of 16.3 percent, the Hudson Waterfront registered the lowest vacancy rate in the Northern and Central New Jersey office market, while maintaining the highest average asking rental rate at $36.92 per square foot. Nearly 116,710 square feet of positive net absorption occurred in the Hudson Waterfront Class A office market in the first quarter. Contributing to this absorption was Forbes Media’s leasing of 92,720 square feet at 499 Washington Boulevard in Jersey City. The media company received a $27.1 million Grow NJ incentives grant to move from Manhattan.
•    The Newark Class A vacancy rate eclipsed 22.0 percent as of the end of the first quarter of 2014 compared to 8.5 percent one year ago. The increase was fueled by building owners putting blocks of space currently occupied by Prudential back on the market. The insurer is vacating space in three of the Gateway Center buildings as it consolidates operations into a new 740,000-square-foot building under development near Military Park. Despite this increase, the Newark submarket maintained the second lowest Class A vacancy rate in Northern New Jersey after the Hudson Waterfront.
•    The current conditions will create opportunities for tenants seeking space in the Northern and Central New Jersey office market in 2014. Furthermore, companies are expected to take advantage of the state’s supercharged economic incentives program, which allows more businesses to qualify for tax credits when creating or relocating additional jobs to the Garden State.
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About JLL
JLL (NYSE:JLL) is a professional services and investment management firm offering specialized real estate services to clients seeking increased value by owning, occupying and investing in real estate. With annual revenue of $4 billion, JLL operates in 75 countries worldwide. On behalf of its clients, the firm provides management and real estate outsourcing services for a property portfolio of 3 billion square feet and completed $99 billion in sales, acquisitions and finance transactions in 2013. Its investment management business, LaSalle Investment Management, has $47.6 billion of real estate assets under management. For further information, visit www.jll.com.