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New Jersey still grapples with high office vacancy, but demand may finally be catching up with the large blocks of space that have been flooding the market in recent years.Those are the findings of a first-quarter market report by the brokerage firm JLL, which said the pace of new space becoming available has slowed since the middle of last year. At the same time, leasing activity in the quarter picked up year-over-year in northern and central New Jersey office submarkets.
Overall vacancy ticked up to 25 percent from 24.9 percent in Q1, JLL found, after the total amount of available space grew by 100,000 square feet. Still, it’s a far cry from the 772,000 and 413,000 square feet of negative absorption recorded during last year’s third and fourth quarters, respectively.
The report also noted that only seven out of 20 northern and central New Jersey counties recorded negative absorption.
Leasing activity in northern and central New Jersey totaled about 2.1 million square feet in the first quarter, according to the JLL report. That’s down slightly from the fourth quarter of last year, but up 23.5 percent year-over-year.
Nearly half of the recent leasing velocity involved companies in professional and business services, information and technology and life sciences, JLL found.
Phil Lipper, an executive vice president in JLL’s Parsippany office, said “there’s a feeling among the brokerage community that it feels like there’s more activity.” But it’s also “too early in the process” to pinpoint what’s driving the uptick.
He noted that vacancy rates in New Jersey can be deceiving because of the age of the state’s office stock. Most were built in the 1980s and mid-1990s, he said, so it’s unlikely they’re even being considered unless they undergo major improvements.
“Little by little we see buildings being renovated, but we don’t have a market that has enough velocity to really get a lot of people to say, ‘Let me really start renovating buildings all over the place,’” Lipper said. “We have a lot of buildings where you walk in and it feels like you’re in 1982. It’s just the unfortunate reality.”
Notably, Class A vacancy in Newark shot up in the first quarter to 24 percent from 15 percent, JLL found. That was due largely to Prudential Financial putting most of its space at the Gateway complex onto the market, a well-chronicled development as the company prepares to move to a new 740,000-square-foot office tower in the city.
But Lipper noted that “it’s not like you’re dropping a building on the market in Manhattan,” — Newark has less than 6 million square of Class A office space. So, “statistically, it has a tremendous effect.”
JLL researchers also recorded about 1.6 million square feet of space under construction during Q1, up about 200,000 square feet from the same period last year. Nearly 75 percent of that came from build-to-suit projects for large corporations such as CommVault Systems in Eatontown, Pearson Education in Hoboken and Prudential Financial in Newark.