Joseph Sarno, executive vice president, CBRE
SADDLE BROOK, NJ–The New Jersey office market continued to outperform expectations during the opening months of 2017, according to CBRE’s Q1 2017 Office MarketView Report. The state recorded 2.28 million square feet of office leasing velocity this quarter and, in fact, New Jersey registered 13.2 million square feet of new leasing over the last year and a half—the largest eighteen-month sum since 2007.
Over the last 18 months, four office buildings in New Jersey have recorded significantly high levels of leasing—5 Giralda Farms in Madison, 700 Sylvan Avenue in Englewood Cliffs and 211 Mount Airy Road in Basking Ridge all achieved leasing in excess of 300,000 square feet. Bell Works, at 101 Crawfords Corner Road in Holmdel, trumped the competition, recording 651,549 square feet of new leases.
“As millennials become the majority of the workforce, occupier behavior is shifting,” says Joseph Sarno, executive vice president, CBRE. “Young adults place less importance on having the corner office and more on going to work in an exciting atmosphere. For example, Somerset Development has leveraged the historical innovations associated with the former Bell Labs facility to generate an environment of creativity, and has seen enormous leasing success as a result.”
With shops, restaurants and a surplus of open space, Bell Works has created a destination unlike any other—a place tenants and visitors can work, play, eat and spend the day, the CBRE report says. Bell Works has effectively challenged the fundamental real estate mantra that location is the most important factor to the success of a commercial property.
Somerset Development has achieved near-full occupancy in record time despite its location in rural Holmdel, the report notes. This property has achieved more leasing than any other building in New Jersey by bringing excitement and amenities to a suburban location. New Jersey is a commuter’s market, and individuals are willing to travel to work in a lively, unique environment.
According to the American Community Survey Report, New Jersey ranks in the top three in terms of daily commute times. Nearly 15 percent of workers in New Jersey commute 60 minutes or more to work—80.2 percent more than the national average. Employers in New Jersey can therefore cast a wider net when recruiting talent.
“Right now, much of New Jersey’s office product is tired, which actually creates an advantage for value-add investors by making it easy for attractive product to stand out,” says Remy deVarenne, senior vice president, CBRE. “Suburban destinations can and will pull demand if landlords provide a ‘cool’ environment that is rich with amenities.”
The average age of an office building in the state is 37 years, and New Jersey developers are in a unique position to redevelop or refresh many of these legacy assets.
Among other MarketView highlights:
Net Absorption: After what seemed to be a worrisome end to 2016, net absorption improved in Q1 2017 with just over 200,000 square feet of absorption across the state. This growth can be attributed to both strong levels of leasing and withdrawals of available space for the redevelopment of obsolete office product. Parsippany recorded the highest level of absorption in the state—more than 300,000 square feet of defunct office space was removed from the market for redevelopment purposes. The trend in office repurposing will continue to drive net absorption in the future.
Availability: The Waterfront submarket’s availability rate recorded its third consecutive quarter of an increase greater than 100 basis points. The submarket, which once maintained an availability rate of 10 percent back in Q4 2011, has now attained its highest rate ever recorded (20 percent). A significant portion of this uptick can be attributed to Broadridge Financial Solutions vacating its space at 2 Journal Square in Jersey City. This space alone contributed about 300,000 square feet of additional available space to the market. On the contrary, the state’s availability rate decreased to 20.6 percent, a 69-basis-point drop from Q4 2016. A negative delta of this size has not been seen since pre-recession.
Average Net Effective Rent: The net effective taking rate for New Jersey fell by $1.02 per square feet in Q1 2017 to $24.29 per square feet Only four of New Jersey’s submarkets posted an average taking rate above that of the state’s. Topping the list was the Waterfront submarket with an average taking rate of $35.18 per square feet, followed by Morristown with an average of $27.89 per square feet. As expected, the lifestyle markets maintained the highest lease rates in New Jersey. A revitalization of traditional suburban submarkets has the potential to drive future lease rate growth in these areas.