State’s real estate market fueled by demand for good office space, real estate firms say

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A flight to quality continued to drive New Jersey’s office market in the second quarter, with tenants moving toward high-end spaces in some of the state’s most robust submarkets.Those are among the findings in new research by two of the state’s top brokerage firms. Experts found that demand for Class A space helped offset large blocks of space hitting the market, leading to positive second-quarter absorption in northern and central New Jersey.

Researchers with JLL, whose New Jersey operations are based in East Rutherford, recorded about 416,000 square feet in net absorption for the region. That marked the highest quarterly total absorption in about two years, according to JLL’s research, which found that nearly 60 percent of that activity came from Class A deals.

“What stands out there is we also had positive absorption in the Class A market during the first quarter,” said Steven Jenco, JLL’s director of suburban tri-state research. “We’ve built a little bit on that first quarter … so we seem to be doing a little bit better there in terms of the Class A market compared to a year ago.”

RELATED: Trading up in N.J. office market: Flight-to-quality concept is trending in the state

The activity, which was concentrated in strong submarkets such as the Hudson waterfront and the Route 24 region, comes after a first quarter in which large blocks of space helped push up vacancy and “overwhelmed any demand we had in the market,” Jenco said. One major deal in Q2 was New York Life’s 114,000-square-foot lease at 30 Hudson St. in Jersey City, driven by a $33.9 million state tax credit it was awarded to relocate from Parsippany and create 300 new jobs.

All told, JLL found overall vacancy for northern and central New Jersey ticked downward, to 25 percent from 25.3 percent.

In a separate report, brokerage firm Cushman & Wakefield highlighted more than 3.7 million square feet of leasing activity in Q2, which it said was the highest total since the fourth quarter of 2011. Researchers in the firm’s East Rutherford office noted a large chunk of the activity was driven by Verizon’s 1.4 million-square-foot sale-leaseback at 295 North Maple Ave. in Basking Ridge, following a sale of the property to Mesirow Realty.

Year-to-date, C&W said, just under 6 million square feet of lease transactions have been completed in the New Jersey market, making it the strongest first half since 2001. The firm also noted that the number of transactions rose in Q2, as small businesses continued to lease space.

“The momentum that fueled strong first quarter leasing has continued to build,” Jason Price, Cushman & Wakefield’s research director for tri-state suburbs, said in a prepared statement. “Quarter-to-quarter and year-over-year comparisons overall are increasingly positive, and we anticipate the current upward trend to continue as the local economy improves.”

It was not all positive news for the state’s office market. The Parsippany submarket took a step back after a standout first quarter, recording about 80,000 square feet of negative absorption, thanks to new space hitting the market.

RELATED: Builders, tenants see upside in Parsippany: Recession-weary market showing signs of promise

But researchers with both firms pointed to strong demand from companies that are still in the market for space. In particular, JLL noted nearly 1.2 million square feet of potential tenant requirements from the information and technology sector.

“What’s going to bring the market into a sustained rebound is … to see a variety of sectors that are active in the market,” Jenco said. “Historically, it’s been financial services and the larger pharmaceutical companies that drove much of the activity in previous market cycles. But it’s encouraging to see some other sectors like technology and information — and even the midsized life sciences companies — (driving activity in the market).”

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