Real Estate: Leasing Momentum Continues in New Jersey’s Urban Centers

In an improving New Jersey office market, leasing activity during the first quarter of 2014 exhibited a clear tendency toward high-quality, centrally located and accessible work space, primarily in the state’s burgeoning urban centers, according to Avison Young’s first quarter 2014 New Jersey office market analysis, released today.

“With steady employment growth and evolving structural demands for commercial tenants, businesses are taking a strategic approach to reassessing their office space needs,” comments Jeffrey Heller, Avison Young Principal and Managing Director of the firm’s New Jersey office. “Shifts in workforce demographics and technological priorities are largely driving employers to take advantage of recent opportunities for high-value, transit-oriented locales.”

Avison Young’s analysis notes that, generally, the movement away from aging suburban office parks that typified 2013 activity has manifested in the early stages of 2014. This trend, according to Avison Young, is being driven by a variety of factors, including increased influence from young office workers (known as “millennials”) seeking a comprehensive live-work-play environment, as well as enticing incentives for relocating businesses under the Economic Opportunity Act of 2013. One such firm that benefited from a $27-million tax credit under the legislation was media giant Forbes, which signed a lease in Jersey City to relocate approximately 350 jobs from the company’s downtown Manhattan offices.

Overall, according to Avison Young, the office vacancy rate in New Jersey remains at 21 percent, an improvement from 21.4 percent one year prior. The most notable change occurred in class A office space, where a flight to quality triggered the fourth consecutive quarterly increase in average rents, reaching $23.37 per square foot (psf).

“As we predicted in 2013, the ever-changing technological landscape, coupled with enticing credits from the Economic Opportunity Act, have started to have a real impact on New Jersey’s commercial real estate market at large, especially in Newark, Jersey City, Hoboken and New Brunswick,” notes Matthew Dolly, Avison Young’s Vice-President of Research in New Jersey. “This is especially true as influence builds from tech-savvy millennials who want walkability and clickability, as they generally prefer the convenience of having everything at their feet and fingertips.”

Though the trend toward urban centers was apparent, recent adaptive reuse initiatives in suburban office parks point to renewed opportunity at sites previously considered to be outdated and unappealing to the new guard of tenants, according to the analysis. Avison Young suggests that the New Jersey market is ripe with well-located suburban complexes fit for large-scale commercial and industrial tenants.

Northern New Jersey

According to Avison Young’s research, cities in northern New Jersey profited greatly from the Economic Opportunity Act’s GrowNJ program. The upswing was headlined by the aforementioned 10-year lease commitment signed by Forbes to absorb +/-93,000 square feet (sf) at Lefrak’s 499 Washington Boulevard in Jersey City, which is conveniently located near a PATH station. Nearby in Jersey City, Quidsi, operating as Diapers.com, renewed its lease and expanded into +/-94,000 sf at 10 Exchange Place.

Other cities also reaped the benefits of the new legislation as Thomson Reuters expanded into +/-72,000 sf in Hoboken and IDT Energy renewed a +/-75,000-sf lease in Newark. In the suburbs, Morris County saw an uptick in activity as pharmaceutical giant Merck leased 150,000 sf at 2 Giralda Farms in Madison in space previously occupied by Maersk, which is moving to a 70,000-sf space at 180 Park Avenue in Florham Park. Merck also leased 120,000 sf formerly occupied by IMS Health at 11 Waterview Boulevard in Parsippany. IMS is staying in the area, taking 60,634 sf at 100 Interpark Boulevard – a 76,000-sf property formerly dubbed the “skeleton” of Parsippany after construction (which began in the late 1980s) stopped due to the recession. The property was redeveloped in 2008 in meager market conditions.

Avison Young notes that northern New Jersey stands to benefit as businesses rely more heavily on mobile and remote technology and, therefore, rely less on having a physical New York City presence. Though vacancy rates in northern New Jersey increased slightly during the quarter to 22.6% from 22.3%, largely due to more than 900,000 sf of soon-to-be-vacated Prudential space in Newark, asking rents have increased to $23.83 psf – the highest level since the first quarter of 2011.

Central New Jersey

Unlike the northern New Jersey market, the central section of the state experienced a large share of small- to medium-sized transactions during the quarter, says Avison Young. One notable exception lies in the flourishing Princeton office market, where NRG Energy signed a 15-year lease for a new 130,000-sf office building to be built by Boston Properties at Carnegie Center.

Elsewhere, a number of smaller leases led to a decrease in the vacancy rate to 18.7%, an improvement from the 20.3% recorded one year prior. Asking rents increased for the second consecutive quarter, averaging a two-year high of $22.57 psf. The area surrounding the Metro Park train station saw continued activity, led by One World Trade Center anchor tenant Conde Nast, which leased 30,383 sf at Woodbridge Corporate Plaza.