real estate

CBRE Group, Inc. New Jersey Q2 2016 Office Marketview Report

Reflected by the completion of several substantial headquarters transactions during the second quarter, New Jersey is witnessing the revival of its traditional suburban office markets, according to CBRE Group, Inc.’s Q2 2016 New Jersey Office MarketView Report.

During Q2 2016, unlike previous quarters, New Jersey’s suburban submarkets, including Route 287/78 Interchange (386,946 sq. ft.), Parsippany (303,785 sq. ft.), Meadowlands (285,271 sq. ft.) and Suburban Essex/E. Morris (214,969 sq. ft.) recorded the highest levels of leasing in the state. These submarkets, which comprise 30.4% of New Jersey’s total office inventory, accounted for 55.0% of the state’s total leasing velocity.

“Key office market indicators in New Jersey are at their strongest point in the past seven years— a fact that can be attributed to the robust demand we’re experiencing, paired with a dwindling supply, particular when it comes to Class A product,” said Greg Barkan, Senior Vice President, CBRE. “While New Jersey’s waterfront and ‘lifestyle’ markets have dominated leasing activity over the past several quarters, the state’s traditional suburban submarkets made an astounding comeback in Q2.”

At 211 Mount Airy Road in Basking Ridge, global pharmaceutical company Daiichi Sankyo consolidated two New Jersey offices, which were located in Edison and Parsippany, placing the entirety of its New Jersey personnel in one 306,999-sq.-ft space. In Secaucus, clinical laboratory services company Quest Diagnostics’ 130,246-sq.-ft. lease at 500 Plaza Drive was a prime reason that the Meadowlands submarket recorded its highest level of leasing velocity since Q4 2004.

Parsippany, Suburban Essex/Eastern Morris and the Waterfront all had a successful quarter as well, with each recording a leasing velocity above 150,000 sq. ft. In Hoboken, Newell Rubbermaid received $27 million in Grow New Jersey tax incentives that led the company to relocate employees from Atlanta, Connecticut and New York City to a new 99,975-sq.-ft. global headquarters at 221 River Street.

”Office tenants continue to make their real estate decisions with the employee and client experience at the forefront of the thought process,” said Joseph Sarno, executive vice president, CBRE. “New Jersey’s office market offers these tenants the unique ability to create space efficiencies and house employees in a single, collaborative environment. As a result, we’re seeing these consolidations and headquarters relocations in both the lifestyle and suburban office markets.”

Overall in New Jersey, leasing velocity, which totaled 2.16 million sq. ft. in Q2, was historically high — 27.7% above the five-year quarterly average — leading to 181,521 sq. ft. of positive absorption. The market boasts an overall availability rate of 20.6%, and an average asking lease rate of $25.56 per sq. ft. — marking the 11th consecutive quarter of positive rent growth.

Of note, Class A product captured 79.8% of leasing velocity, while comprising only 58.5% of the state’s inventory.

CBRE, which is tracking more than 5 million sq. ft. of current demand in the New Jersey office marketplace, anticipates strong leasing velocity for the remainder of the year throughout the state, which maintains a solid track record for attracting demand from outside the market, as well as for retaining tenants.

More than 55% of Q2 lease commitments over 50,000 sq. ft. received tax incentives from the Grow New Jersey Assistance Program, leading to the creation of 661 new jobs, and retaining 1,487 jobs in New Jersey.

“Evolving tenant preferences and the desire for open and collaborative work environments will continue to invigorate New Jersey’s suburban markets,” Sarno said. “We expect this demand will further compress the availability rate in New Jersey, elevating the average asking lease rate to historical highs.”

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