The Garden State’s office market has hit a snag.
New Jersey’s office leasing volume from July to September was 1.3 million square feet, less than half of the second quarter’s volume of 3 million square feet, according to Avison Young’s quarterly market report.
(The Real Deal had reported on July 6 that second-quarter leasing volume tracked by Avison Young was only 2.1 million square feet. The updated number is higher, probably because some leases signed during the quarter were recorded after the story’s publication.)
The drop in the third quarter may partly be attributed to the spread of the delta variant, which caused “companies to pause the assessment of their real estate requirements and extend remote work options for employees,” said Jeffrey Heller, principal and managing director of Avison Young’s New Jersey office.
A decline in the Garden State’s number of office-using jobs by 4.1 percent in the pandemic — which is more than the 2008 global financial crisis’ reduction of 3.3 percent — didn’t help either.
The state’s less-than-expected leasing activity is a stark contrast to Manhattan’s office leasing volume, which rose by nearly 60 percent from the second quarter.
New Jersey’s office availability rate in the third quarter reached 19.1 percent — its highest since 2015 — driven by 9.2 million square feet of sublease inventory. Net absorption for the quarter was negative 0.2 percent, according to the report.
The third quarter’s major leases included Cigna’s 197,000-square-foot deal at the former Honeywell headquarters in Morris Plains at 115 Tabor Road. The health care and insurance company is moving its 2,100 employees from its Franklin Lakes location. Fiserv also leased 430,000 square feet at 100 Connell Drive in Berkeley Heights, consolidating its Parsippany and Jersey City offices.
Despite record-low leasing activities, the decline in base rents has been limited to 3.1 percent since the pandemic took hold of the market in the second quarter of 2020. Instead of reducing base rents, landlords looking to be competitive resorted to beefing up concessions. Tenant improvement allowances increased by 10.5 percent year to date, according to the report.
Unlike the stagnated leasing market, office investment sales remained active in the third quarter.
Major deals included the Birch Group’s $380 million acquisition of a 1.2 million-square-foot waterfront office building at 101 Hudson Street in Jersey City from Mack-Cali Realty. Additionally, Healthpeak Properties snatched a medical complex at 435,465 and 475 South Street in Morris County from the Chicago-based Harrison Street Real Estate Capital for $147 million, according to public records. Harrison Street bought the office buildings mostly occupied by Atlantic Health System for about $138 million in 2018.