Transwestern: NJ Office Rents Rebound, Newark Tops $30/SF
The market’s diversity was on display during the quarter, as companies from various industries, including retail, manufacturing, life sciences, insurance and telecommunications, signed large office leases, say Transwestern's Matthew McDonough and Matthew Dolly.
PARSIPPANY, NJ—It’s getting more expensive than ever to lease office space in New Jersey’s largest city, Newark, according to new research by Transwestern. Average asking rents in the “Brick City” surpassed $30 per square foot in the quarter, for just the second time since 2001.
Buoyed by strong quarterly and year-over-year rent increases in Newark, the Parsippany submarket, and the Union/Parkway Corridor, New Jersey office rents in general have rebounded to near-record highs, according to Transwestern’s Second-Quarter 2018 Office Market Report.
The market experienced more than 500,000 square feet of positive absorption, while the vacancy rate improved from 15.3% to 15%.
Meanwhile, Jones Lang LaSalle research notes that although leasing velocity in the Northern and Central New Jersey office market improved slightly from the first quarter, deal volume was still down nearly 50 percent compared with one year ago,
On the quarter, positive net absorption occurred in 13 of 21 submarkets, with rents rising in 17 of 21 submarkets, says Transwestern.
“As expected, deals that were in the market during the second half of 2017 have finally come to fruition, and the New Jersey office market is poised to improve further as tenants that recently signed new leases take occupancy,” says Matthew McDonough, Transwestern managing director. “Office landlords that are investing capital to create vibrant environments are being rewarded with increased activity, which has led to the influx of higher asking rents.”
Large transactions completed during the second quarter have helped the market recover recent losses. Integra Life Sciences, Ralph Lauren and Mars Wrigley executed leases after previously receiving state tax credits, while Plymouth Rock will reside in a prime location previously occupied by the New Jersey Turnpike Authority following a modernization of the property.
“Although most of the leasing activity was generated by smaller leases, a handful of transactions in excess of 100,000 square feet were recorded during the second quarter,” says Stephen Jenco, Jones Lang LaSalle’s vice president and director of suburban tri-state office research. “Among the largest new deals was Integra LifeSciences Holding Corp.’s lease of the 167,000-square-foot 1100 Campus Road in Plainsboro. The global medical technology company received a $17.8 million state tax credit to relocate its operations within Middlesex County.”
The market’s diversity was on display during the quarter, as companies from various industries, including retail, manufacturing, life sciences, insurance and telecommunications, signed large office leases. Furthermore, companies have begun to seek spaces with expansion options, which is an indication of a growing economy, Transwestern says.
“As the economy continues to grow, many developers remain hopeful that millennials will return to the suburbs, even if it is at a later age than that of past generations,” says Transwestern’s Matthew Dolly, New Jersey research director. “Grow New Jersey incentives are creating opportunities for the redevelopment and transformation of aging office product, which is having a profound effect on the state of the market, as evidenced by the large deals that were completed during the second quarter.”
JLL says the Northern and Central New Jersey office market posted 540,660 square feet of negative net absorption in the second quarter of the year, with most of that because of increased vacancies in the Parsippany submarket. With nearly 281,130 square feet of negative net absorption, the Parsippany submarket recorded the largest volume of negative absorption in the Northern and Central New Jersey class A market. This negative absorption boosted the Parsippany class A vacancy rate above 34.0 percent compared with 31.5 percent earlier this year, JLL says.
Approximately 489,730 square feet of office space remained in various phases of development within the Northern and Central New Jersey office market during the second quarter of 2018, says JLL.
The Hudson Waterfront continued to maintain the highest class A rent in the state, according to JLL’s numbers, posting an average asking rental rate of $44.90 per square foot in the second quarter. Metropark’s average asking rental rate of $34.97 per square foot represented the highest class A rent in Central New Jersey.
“With dwindling sublease space, landlords are increasingly confident in the current marketplace,” says Jason Price, director of Cushman & Wakefield’s tri-state suburbs research. “Sustained demand momentum and higher-priced Class A blocks on the market in prime areas are further contributing to the pricing uptick.”
This overall positive office trending is expected to continue in the coming months, with a handful of additional, significant transactions expected to close, according to Cushman & Wakefield. “Amenity-rich, upgraded assets will outperform the balance of the marketplace as companies attempt to attract and retain employees in the current tight labor market,” Price says.