CBRE Group 2Q MarketView Shows NJ Office Leasing Brisk

SADDLE BROOK, NJ—The New Jersey office market ended the second quarter with a significant reduction in availability and an improvement in total net absorption, according to CBRE's Q2 2014 New Jersey Office MarketView Report. The market closed the quarter with 1,756,089 square feet of new leasing activity, up 8% from the year prior and approximately 6% over the five-year quarterly average. Contributing to the positive momentum was a decrease in big block availability, resulting largely from activity led by Automatic Switch Company and JP Morgan Chase & Co. The corporations each took down more than 200,000 sq. ft. of space.

Grow New Jersey incentives also played a big role in the activity, CBRE says.

“Grow New Jersey is so powerful that tenants are really taking a look at expanding here,” Jeremy Neuer, senior vice president of CBRE tells GlobeSt.com exclusively. “When you talk about companies having the opportunity to locate in other places with cheaper labor markets, it's obvious that we are not just losing jobs to New York or Pennsylvania, it's a national and international competition for jobs. Our state leaders have been very aggressive. First we saw the Urban Hub Transit Tax Credit is very successful for companies like Panasonic and Prudential, and now we are seeing Grow New Jersey take its place. It's got a broader reach, because it's not just limited to those companies that are going to urban areas.”

Northern New Jersey was the driving force behind the positive momentum in the second quarter, as it recorded nine out of the 10 top new leasing transactions in the state. The Morristown submarket posted the highest leasing velocity, with 545,040 sq. ft. of new activity, followed by the Waterfront, with 283,994 sq. ft. J.P Morgan Chase & Co. signed its 226,249-sq.-ft. lease at 480 Washington Boulevard in Jersey City, creating approximately 1,000 news jobs. After being approved for state incentives, Sony Music Entertainment signed a 39,200-sq.-ft. lease at 301 Route 17 North in Rutherford.

Activity in Central Jersey this quarter was comprised of smaller transactions, as more than 80 percent of overall activity was less than 25,000 sq. ft. and 41 percent of leasing activity in the quarter was less than 10,000 sq. ft. Significant transactions included Grant Thornton's 31,288 sq. ft. lease at 186 Wood Avenue South in Iselin and FEMA's 30,000 sq. ft. lease at 260 Industrial Way West in Eatontown.

Between 2008 and 2013, renewals made up, on average, 38 percent of the state's total activity. However, in the second quarter of 2014, renewal activity made up only 23.4 percent.

“During uncertain economic times, tenants were reluctant to sign news leases and found it more prudent to renew in place,” says David Opper, senior vice president, CBRE. “Throughout the second quarter, however, corporations were much more inclined to sign new leases, signifying increased confidence and a positive outlook on the New Jersey market."

New Jersey's average asking rental rates continued to demonstrate steady growth, up $0.70 per sq. ft. from the year prior and closing the second quarter at $24.73 per sq. ft., which is the highest rate recorded since Q3 2009. Submarkets with the highest asking rents include the Waterfront at $31.40 per sq. ft., Princeton at $26.92 per sq. ft., and Parkway Corridor at $25.36 per sq. ft.

While several large blocks of space are expected to hit the market in the coming months, there are a number of notable transactions in the pipeline that are expected to close later this year. CBRE is tracking 17 tenants in the market with requirements greater than 100,000 sq. ft. This demand is expected to offset much of the new space additions, keeping the availability rate from increasing and absorption from turning negative.

Incentives are important, but “we have a very talented labor pool here as well,” says Neuer. “We saw a lot of jobs move overseas, and then we saw that some jobs couldn't move overseas, like client-facing jobs. Maybe closer to home is the right answer for some companies. There's a lot that New Jersey as a state has to offer.”

Want to continue reading?
Become a Free ALM Digital Reader.

Once you are an ALM Digital Member, you’ll receive:

Breaking commercial real estate news and analysis, on-site and via our newsletters and custom alerts
Educational webcasts, white papers, and ebooks from industry thought leaders
Critical coverage of the property casualty insurance and financial advisory markets on our other ALM sites, PropertyCasualty360 and ThinkAdvisor

NOT FOR REPRINT

Steve Lubetkin is the New Jersey and Philadelphia editor for GlobeSt.com. He is currently filling in covering Chicago and Midwest markets until a new permanent editor is named. He previously filled in covering Atlanta. Steve’s journalism background includes print and broadcast reporting for NJ news organizations. His audio and video work for GlobeSt.com has been honored by the Garden State Journalists Association, and he has also been recognized for video by the New Jersey Chapter of the Society of Professional Journalists. He has produced audio podcasts on CRE topics for the NAR Commercial Division and the CCIM Institute. Steve has also served (from August 2017 to March 2018) as national broadcast news correspondent for CEOReport.com, a news website focused on practical advice for senior executives in small- and medium-sized companies. Steve also reports on-camera and covers conferences for NJSpotlight.com, a public policy news coverage website focused on New Jersey government and industry; and for clients of StateBroadcastNews.com, a division of The Lubetkin Media Companies LLC. Steve has been the computer columnist for the Jewish Community Voice of Southern New Jersey, since 1996. Steve is co-author, with Toronto-based podcasting pioneer Donna Papacosta, of the book, The Business of Podcasting: How to Take Your Podcasting Passion from the Personal to the Professional. You can email Steve at [email protected].