Increase in deal volume puts downward pressure on overall vacancy rate

After less than 2.0 million square feet of leasing transactions were completed in the Northern and Central New Jersey office market during the first quarter of 2016, leasing velocity rebounded to more than 2.4 million square feet three months later,according to JLL. The uptick in leasing velocity pulled the Northern and Central New Jersey overall vacancy rate down 20 basis points from early 2016 to 24.4 percent at mid-year.

“Nearly two-thirds of the leases signed during the second quarter were concentrated in Northern New Jersey as office occupiers were active in the Hudson Waterfront, Parsippany and Route 280 Corridor markets, “ said Jonathan Meisel, Managing Director with JLL. “The banking/financial services sector accounted for approximately one-quarter of signed leases in the state, followed by life sciences/pharmaceutical companies, which were involved with nearly 22.0 percent of transactions during the second quarter.”

Nearly326,700 square feet of space was absorbed in the Northern and Central New Jersey office market during the second quarter, putting a dent in the 562,300 square feet of negative net absorption recordedin early 2016. The Hudson Waterfront and Route 280 Corridor submarkets each posted more than 75,000 square feet of positive net absorption in Northern New Jersey, while the Metropark submarket led Central New Jersey with 82,220 square feet of absorption.

Buildings burdened by prolonged vacancies and considered functionally obsolete by today’s office users are increasingly being targeted for demolition to make way for new projects or converted to alternatives uses. Bergen County was the setting for a large portion of this recent activity. The Bergen County overall vacancy rate dropped to 23.3 percent in the second quarter compared to more than 25.0 percent in early 2016. A leading factor behind this decline was the removal of 1 Lake Street in Upper Saddle River from the office inventory. Mack-Cali Realty Corporation began demolishing the 474,800-square-foot former Pearson Education building to make way for housing development at the site.

Three notable build-to-suit projects, totaling approximately 440,445 square feet, were under construction in the Northern and Central New Jersey office market during the second quarter of 2016.Build-to-suit projects are underway for Metropolitan Life Insurance Co. (MetLife) in Whippany, NRG Energy, Inc. in Princeton and Zoetis Inc. in Parsippany. MetLife’s 185,000-square-foot building at 67 Whippany Road in Whippany is expected to be delivered during the third quarter.

Highlights of the second quarter of 2016 include:

Northern and Central New Jersey’s overall vacancy rate dropped to 24.4 percent at midyear 2016compared to 24.6 percent earlier in the year. The state’s overall vacancy rate was 60 basis points less than a year ago.

The Northern and Central New Jersey average asking rental rate for direct space ticked $0.20 higher from early 2016 to $28.10 per square foot. Additional availabilities marketed at higher rents contributed to the recent uptick.Year-over-year, theClass A rental rate grew 1.0 percent from $27.82 per square foot at midyear 2015.

With an average asking rental rate of nearly $38.00 per square foot at midyear 2016, the Hudson Waterfront maintained the highest Class A rent in the office market. Metropark’s asking rental rate of nearly $31.00 persquarefoot represented the highest Class A rent in Central New Jersey.

Offering highway access and commuter rail service, the Metropark submarket provided the stage for a large portion of recent Class A demand in the state. After approaching 25.0 percent at year-end 2014, the Metropark Class A vacancy rate has since fallen to 15.0 percent. Hackensack University Health Network/Meridian Health Systems and Bank of America were responsible for some of the largest leases recently completed in this submarket.

Additional vacancies exceededdemand in Parsippany’s Class A office market, leading to 116,480 square feet of negative net absorption inthe second quarter.This represented the largest volume of negative net absorption in the Northern New Jersey Class A market. B&G Foods, Ferrero USA and Tangoe, Inc. were among the companies active on the leasing front, withdemand countered by 181,600 square feet placed on the market for sublease by Daiichi Sankyo at 2 Hilton Court. The life sciences company is consolidating its operations from Parsippany and Edison to Basking Ridge. The Parsippany Class A vacancy rate subsequently increased from less than 26.0 percent in early 2016 to 27.0 percent, reaching its highest point in a year.

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JLL is a leader in the northern/central New Jersey commercial real estate market, with more than 1,000 professionals and support staff providing agency leasing and property marketing, tenant representation, industrial services, strategic consulting, occupancy planning, workplace strategies, project and development services, property and facility management, and investment sales/capital markets services to New Jersey's leading corporate tenants, investors and landlords. The firm, which assists clients from three full-service offices in Parsippany, Iselin

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(Metropark) and East Rutherford, also acts as a local service provider for JLL’s global and national corporate clients in need of real estate assistance in New Jersey. JLL’s New Jersey operations were honored by NJBiz magazine as one of its 2015 Best Places to Work in New Jersey.

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. A Fortune 500 company with annual fee revenue of $5.2 billion and gross revenue of $6.0 billion, JLL has more than 280 corporate offices, operates in more than 80 countries and has a global workforce of more than 60,000. On behalf of its clients, the firm provides management and real estate outsourcing services for a property portfolio of 4.0 billion square feet, or 372 million square meters, and completed $138 billion in sales, acquisitions and finance transactions in 2015. Its investment management business, LaSalle Investment Management, has $58.3 billion of real estate assets under management. JLL is the brand name, and a registered trademark, of Jones Lang LaSalle Incorporated. For further information, visit www.jll.com