CBRE: Increased NJ Office Market Leasing Velocity Driven By Desire to Improve Experience of Employees and Clients

On Feb 19, 2016

According to CBRE Group, Inc.’s Q4 2015 New Jersey Office MarketView Report, the state’s office market continued to flourish in Q4 2015, as an increasing number of tenants are prioritizing the experience of employees and clients. Leasing velocity totaled 2.37 million square feet in the final quarter of the year, outpacing last quarter’s leasing by 45.1 percent and pushing annual velocity 5.4 percent above that of 2014.

Reflecting on 2015 activity overall, occupiers favored top-quality product in desirable locations. GlaxoSmithKline, Bank of America, and KPMG are a few examples of firms that executed lease commitments motivated by this trend. Moreover, while Class A product accounts for 54.9 percent of the state’s total inventory, New Jersey’s Class A properties attracted more than their fair share of office demand, capturing 64.0 percent of the state’s total leasing velocity.

“New Jersey’s office market has spent the past several years adjusting to transformative trends that have significantly impacted its overall performance, including occupier densification, aging inventory, and the growth of Millennials in the workforce,” said Jeff Babikian, Executive Vice President, CBRE. “In 2015, these changes led to the prominent establishment of New Jersey’s lifestyle markets. The Waterfront, Greater Morristown, Urban Essex, MetroPark, and Princeton all received heightened attention for their high-energy communities, where residents, tenants, and visitors can live, work, and enjoy recreational activities.”

The lifestyle markets repeatedly outperformed the overall state, maintaining an availability rate that sits 140 basis points below the state’s average, attracting 50.3 percent of the state’s leasing velocity, and recording some of New Jersey’s highest average asking rents. Tabulating the largest lease commitments in New Jersey since 2007, these markets have attracted 63.2 percent of the transactions sized 100,000 sq. ft. or greater.

While tenants realize the benefits of being located in these amenity-rich geographies, developers are mimicking these characteristics in markets where they do not currently exist. In Montvale/Woodcliff Lake — a submarket that recently suffered the loss of several large corporate tenants — the S. Hekemian Group is developing a shopping community that will complement the growing residential developments and the many office tenants nearby. In Parsippany, Stanbery Development’s new mixed-use project, referred to as Town Center at 1515, will likely have a similar impact on the surrounding area in Morris County.

“Moving into 2016, tenants will continue to make real estate decisions with employee and client office experiences in mind,” said Sean Morley, First Vice President, CBRE. “New Jersey’s popular lifestyle submarkets will continue to be the premier choice. Consequently, developers will widely embrace ways to enhance and/or inject life into other corporate communities that will require amenity upgrades to maintain existing tenants and attract new ones.”

With a new normal set for leasing velocity — now averaging 6.47 million sq. ft. per quarter — and most of the stale office campuses already reflected in the state’s availability rate, the office market continues to register positive overall performance indicators. The fourth quarter was the second consecutive quarter that registered positive net absorption for New Jersey (656,825 sq. ft.), and the state’s availability rate fell by 14 basis points quarter-over-quarter. Furthermore, for the first time since the beginning of 2009, the average asking lease rate for office space in New Jersey broke the $25.00 per sq. ft. mark, reaching $25.33 per sq. ft.

Significant transactions that boosted Q4 2015 activity included:

• The New Jersey Turnpike Authority’s take down of 1 Hess Plaza in Woodbridge (205,000 sq. ft.)

• Lowenstein Sandler’s new lease at 56 Livingston Avenue in Roseland (170,000 sq. ft.)

• Bank of America’s commitment at 194 Wood Avenue South in Iselin (50,648 sq. ft.)

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