Leasing keeps pace with NJ inventory growth.

Since 1996, the New Jersey office market has experienced an incredible 8.4 percent rise in inventories, yet the availability rate has kept pace with this expansion by shrinking from 16.6 percent to 13.8 percent, according to a report from Newmark Partners, Inc., the New Jersey operation of Newmark & Company Real Estate, Inc.

Enthusiastic leasing activity in both Central and Northern New Jersey in the first three months of 1998 helped sustain this trend, as availability rates remained stable and inventories rose. Northern New Jersey's availability rate remained 12.9 percent - quite a feat considering that over 2 million square feet was added to the market during the quarter. Central New Jersey did not fare as well -availability rose to 15 percent from 14.7 percent - after taking on 1.5 million square feet of additional inventory during the first three months of 1998.

Rents in New Jersey have risen for four successive quarters to reach $18.96 from $18.72 per square foot, a 23.4 percent rise from this point in 1997. Northern New Jersey led the way, as rents rose 35.9 percent year-on-year to $20 per square foot, while rents in Central New Jersey climbed 7.6 percent to $17.59 per square foot.

Central New Jersey

Three months into 1998, the Central New Jersey office submarket growth trend showed no signs of leveling off. Building conversion continued and new office space came onto the market. Though this new inventory has affected the availability rate negatively, the addition of so much new Class A space will likely increase avenge rents in this submarket. Total rentable building area (RBA) jumped to 68.7 million square feet from 67.2 million in the fourth quarter of 1997, therefore the availability rate (which inched up to 15 percent up from 14.7 percent) does not accurately reflect the absorption of over a million square feet.

Despite the ever-increasing inventory, the availability rate in Central New Jersey has remained stable. Rents in the submarket climbed 2.6 percent to $17.59 from $17.14 per square foot. Seven of the nine districts in this submarket experienced an increase in rents, with only Woodbridge (down $.02 to $19.63 per square foot) and Union (off$.92 to $16.06 per square foot) dropping off.

Woodbridge posted the strongest first quarter of the district, as availability decreased to 15.2 percent from 17.3 percent, and 122,788 square feet was absorbed. The addition of 334,226 square feet of new inventories translated to total net absorption of 457,014 square feet.

Also turning in a strong quarter was the Princeton area district, which experienced the most RBA growth (386,732 square feet), though availability decreased to 11.4 percent from 11.9 percent. The net absorption of 49,153 square feet that produced this drop in availability offset the expansion in RBA to generate total net absorption of 435,885 square feet. This district has grown by more than 3.5 million square feet since 1996, and the availability rate has shrunk from 18 percent.

The third Central New Jersey district to record total net absorption over 100,000 square feet was Monmouth West, where the availability rate dropped to 23 percent from 24.2 percent due to the absorption of 190,310 square feet. Together with Woodbridge and Princeton, these districts accounted for more than a million square feet of total net absorption.

Central New Jersey avenge asking rents increased by $.45 to $17.59 per square foot in the first quarter, representing a 7.6 percent ($1.23) increase since March 1997. This increase was fueled by seven of nine districts posting rental increases. Somerset, where rents rose $1.51 to $21.65 per square foot, surpassed The Brunswicks as the most expensive district.

Piscataway, another district where rents rose over a dollar, was up $1.16 to $17.33 per square foot, while the remaining gainers inched up less than $.50. In the Union district, rents fell by $.92 to $16.06 per square foot to mark the third successive decrease in Union and a loss of $1.93 per square foot in rents since June 1997.

Northern New Jersey

For the fifth straight quarter, the Northern New Jersey submarket continued to absorb space. Since 1996, the availability rate has fallen to 12.9 percent from 15.8 percent, and over 8 million square feet of office space has been absorbed.

New buildings and conversions have increased the inventory by 6 million square feet and have kept the market from becoming overly congested. In fact, only two districts reported single-digit availability rates, while two others exceeded 20 percent availability. Consequently, rents in the submarket continued to rise and reached the $20 per square foot mark.

The Morris West district had the strongest quarter in the New Jersey market. Inventory grew by 805,274 square feet (77.2 percent), yet voracious leasing activity absorbed all but 17,269 square feet. This massive total net absorption (788,005 square feet) caused the availability rate to plummet seven percentage points to 11.1 percent. Surprisingly, this drastic tightening occurred without any large leases (over 50,000 square feet) being signed in the area.

Not to be overlooked were performances by Waterfront, Urban Essex, Central Bergen and Morristown Area, which absorbed in excess on 250,000 square feet each and combined for total net absorption of 1.5 million square feet. In contrast, North and West Bergen negatively net absorbed 283,879 square feet, but was only joined by Essex West (110,454 square feet) and The Meadowlands (70,947 square feet) as districts that returned space to the market this quarter.

Though Northern New Jersey rents rose a mere $.09 per square foot, they achieved the important $20 per square feet level, driven by a $.56 jump in sublet rents to $21.66 per square foot, while direct rents inched up $.02 to $19.80 per square foot. Large changes were absent this quarter, as none of the 10 districts experienced rental rate moves greater than $.90.

The submarket benefitted not from one district's rents surging, but from a well-rounded performance in all of Northern New Jersey. This quarter's gainers were Central Bergen, Essex Urban, Morristown Area, North & West Bergen, Waterfront and West Paterson. Of these districts, Morristown Area rems increased the most to $22.48 from $21.59 per square foot. The Meadowlands' rent decreased to $17.26 from $17.90 per square foot, leading Essex West, Morris West and Parsippany in minor rent declines.

As demand for quality office space in the Northern New Jersey submarket continues to keep pace with the proposed expansion, rents should remain stable.

"There are almost no large blocks of space left in New Jersey, and conversions, which are few and far between, are not stemming the tide of demand," said Seena Stein, SIOR, president of Newmark Partners, Inc. "On a positive note, many new build-to-spec buildings are available, and tight markets such as Somerset, Morris and Waterfront are getting new construction."