PARSIPPANY, NJ - A surge in fourth quarter activity pushed 2017 industrial leasing to 44.8 million square feet - marking the third consecutive year the annual total leasing activity surpassed 40.0 million square feet, according to Colliers International NNJ LLC (NASDAQ: CIGI, TSX: CIG). The global commercial real estate services firm today released its year-end 2017 Market Snapshots, which also reports that, despite high expectations, anemic office leasing during the past three months yielded the lowest annual activity - 9.5 million square feet - since 2008.
INDUSTRIAL MOMENTUM CONTINUES
Following a summer slowdown, industrial tenants leased 13.9 million square feet during the final three months of the year, representing a 52.8 percent jump quarter-over-quarter. A nearly 1.4 million-square-foot lease renewal by Williams Sonoma at 340 Middlesex Center Blvd. in South Brunswick led the pack, followed by a 725,400-square-foot pre-lease by Best Buy at 171 River Road in Piscataway and a 597,594-square-foot new lease by Amazon at 18 Applegate Drive in Robbinsville.
"2017 industrial leasing was up 7 percent over the previous five-year average of 41.7 million square feet," noted David A. Simon, SIOR, executive managing director and New Jersey market leader. "Robust tenant demand continues to drive down the availability rate, even though new product is being brought to the market at a rapid pace. With just 6.1 percent industrial availability, developers have accelerated their construction schedules. During the fourth quarter, 10 projects totaling 4.5 million square feet broke ground, bringing the total construction pipeline to 45 properties totaling 17.1 million square feet." The average asking rent continues to rise as well, reaching a record high of $7.23 per square foot - up from $6.43 at year-end 2016.
Northern New Jersey maintained healthy industrial momentum, with 5.5 million square feet of leasing, its sixteenth quarter of positive absorption and an all-time low availability rate of 7.0 percent. Central New Jersey recorded 8.4 million square feet of industrial leasing activity in the fourth quarter, bringing the region's 2017 total to 27.1 million square feet - the second-highest annual total on record.
"In the northern counties, properties located near the ports and the New Jersey Turnpike continue to attract the most demand," Simon noted. "Activity in Central New Jersey is being driven by the large number of users seeking new class A facilities, typically found along the New Jersey Turnpike and I-287. With extremely limited available space, users are expanding their search south of Exit 8A as well - a trend we expect will continue in 2018."
OFFICE POISED TO ACCELERATE IN 2018
In Northern New Jersey, a slowdown in office leasing activity during the fourth quarter, coupled with new availabilities resulted in negative net absorption for the quarter. While the availability rate improved 40 basis points from the prior quarter, to 20.5 percent, this was a result of the ongoing adaptive reuse trend and not an increase in tenant occupancy. The lack of demand from larger office tenants in Central New Jersey pushed leasing activity down to levels not seen since 2014, and the availability rate remained unchanged, hovering around 19.0 percent for the third consecutive quarter.
"New Jersey office leasing in 2015 and 2016 saw its best two-year performance in more than a decade, so 2017's lackluster performance came as a bit of a surprise," said John Obeid, senior director, Tri-State Suburban Research for Colliers. "Still, a lack of new available space kept overall net absorption positive - totaling nearly 59,600 square feet - during the fourth quarter. The amount of available space fell even further this quarter as a result of the ongoing adaptive reuse trend, which helped lower the availability rate to 19.8 percent, dipping under 20 percent for the first time since 2009."
Significant office tenant commitments offered bright spots, including Societe Generale's 108,574-square-foot lease at 480 Washington Blvd. in Jersey City, and Movado Group's 90,050-square-foot lease at 650 From Road in Paramus. Altice USA made two notable commitments - 64,125 square feet at 30 Knightsbridge Road in Piscataway and 60,994 square feet at 40 Potash Road in Oakland. "Additionally, several large transactions are anticipated to close during the first quarter of 2018, which will help the new year get off to a strong start," Obeid added.