James Postell, partner and city leader of Transwestern’s New Jersey office, left, and Matthew Dolly, Transwestern’s New Jersey research director
PARSIPPANY, NJ—Office space in New Jersey is being absorbed at a level not seen since before the recession, buoyed by significant activity in waterfront markets near New York City – most specifically on the Hudson Waterfront and near the George Washington Bridge – according to Transwestern’s First-Quarter 2017 Office Market Report.
Two-thirds of the submarkets covered in the report experienced positive year-over-year net absorption, contributing to a total of nearly three million square feet of absorption between the start of second quarter 2016 and the end of first quarter 2017 – the highest year-over-year total since the end of 2007.
Average rents in the market continued to climb during the first three months of the year, averaging $26.38 per square foot – the highest level since third quarter 2008 and nearly 10 percent higher than the post-recession-low seen in 2011. Two-thirds of submarkets experienced both quarterly and year-over-year rent increases, with Somerset/Interstate 78 East, Parsippany Region and Bergen Central growing fastest.
“Leasing in New Jersey’s office market this quarter is being driven by retailers and consumer products companies, similar to what we are seeing in the industrial market,” says James Postell, partner and city leader of Transwestern’s New Jersey office. “While leasing has been substantially stronger in the northern New Jersey submarkets, we’re seeing rent growth almost everywhere.”
Leases signed during the first quarter by retailers and consumer product companies in the Hudson Waterfront submarket include:
- Tory Burch accepted a $10.7 million Grow New Jersey incentive to relocate its back-office operations from Manhattan to Jersey City. The American designer of women’s clothing and lifestyle products already occupies a large distribution facility in central New Jersey.
- IT Cosmetics, a creator and seller of makeup and skin care products that recently acquired L’Oreal, leased approximately 60,000 square feet at Newport Office Center in Jersey City.
In the George Washington Bridge submarket, the following deals were inked:
- Consumer goods giant Unilever committed to staying in Englewood Cliffs for 18 years in a sale-leaseback of its North American headquarters.
- Jeep leased 56,500 square feet in Englewood Cliffs, which it plans to convert to a showroom.
- Nearly seven years after proposals, lawsuits and variances, LG Electronics broke ground on its 350,000-square-foot North American headquarters in Englewood Cliffs.
Only half of the state’s submarkets experienced improved occupancy as leasing activity was offset by space returning to the market. Overall, the market’s vacancy rate improved from 15.5 to 15.1 percent during the quarter.
“We’re anticipating slow growth for the remainder of 2017, as increased space availabilities are balanced out by the continued growth of New Jersey’s private sector, which added over 28,000 jobs in the first two months of 2017,” says Matthew Dolly, Transwestern’s New Jersey research director. “Sublease availability has been climbing slowly, and it remains to be seen how the market will absorb the space left behind by several significant company relocations. However, as creative office projects continue gaining popularity and office conversions take obsolete product off the market, potential increases in vacancy rates are likely to remain at a minimum.”
Additional highlights of the report include:
- Asking rents in each of the fastest-growing submarkets of Somerset/I-78 East, Parsippany Region and Bergen Central are more than $2 per square foot higher than they were 12 months ago.
- All nine of New Jersey’s major industry sectors added jobs in February, pushing the unemployment rate to its lowest level since 2007 at 4.4 percent.
- Broadridge Financial Solutions signed the largest new lease during the quarter, for 160,000 square feet, and plans to relocate 1,000 jobs from Jersey City to Newark.
- The vacancy rate in the Monmouth East submarket is trending lower, largely due to Bell Works in Holmdel, which continues to attract amenities-seeking tenants.