Demand remains weak in the 105.5-million-square-foot Northern New Jersey general purpose, multi-tenant office market, and new supply is starting to revive. The vacancy rate increased 20 basis points to 18.6% in the second quarter according to Reis, thanks to 140,000 square feet of negative net absorption. Another 232,000 square feet of negative demand in July and August lifted the rate to 18.8%. Net absorption had been positive in the first quarter, but only because the 325,000-square-foot BASF Center completed. Accordingly, demand for older buildings is weak with second quarter net absorption at plus 225,000 square feet for Class A and minus 365,000 for Class B/C.
The solid demand for new buildings has encouraged developers, and Reis reports 510,000 square feet under construction led by the 411,000-square-foot Two Riverfront Center in Newark. New supply, limited during the recession, is forecast at 628,000 square feet in 2013 and double that in 2014. Reis, however, predicts demand is set to soar, lifting overall net absorption to 767,000 square feet in 2012 and more than 1.5 million per year thereafter. The vacancy rate is expected to fall to 18.1% at year-end 2012 and 13.8% at year-end 2016.
For now, however, rents are flat. During the second quarter the average asking rent increased 0.1% to $27.75 psf with the average effective rent down a penny at $23.02 psf. The year-over-year gain was 0.5% by both measures, and though each had lost a penny by August, Reis predicts gains of 1.0% asking and 1.7% effective for all of 2012. Larger increases are forecast to follow, with the asking average rising more than 2.5% per year and the effective average more than 4.0% starting in 2014.
Cushman & Wakefield reports an overall vacancy rate of 17.9%, up 60 basis points from a year earlier, and an overall asking rent of $25.36 psf.