SADDLE BROOK, NJ—Millennials may not be willing to stay in the Garden State if the job opportunities presented to them are in suburban rather than urban areas, according to the latest Office MarketView report from CBRE.
The CBRE report raised several concerns about the willingness of young professionals to maintain Garden State residency, especially in more suburban areas, and fill the entry-level positions as they become available. Global occupiers identified access to talent as one of the leading drivers of market selection and building decisions in CBRE’s research. Now that millennials—people born between 1980 and 2000—represent the largest age cohort in the American workforce, it is no surprise that companies are focused on how to attract and retain this talent pool.
While New Jersey witnessed an increase in the size of its overall working-age population in recent years, the competition for talent remains fierce, as the unemployment rate remains at a ten-year low of 4.1 percent. Meanwhile, as millennials become an increasingly important part of the labor market, New Jersey is challenged with holding onto its younger workforce; a recent report by the New Jersey Business & Industry Association states that “the number of millennials moving into New Jersey falls well short of the number moving out.”
Meanwhile, CBRE says young people choose their place of residency based on convenient access to amenities and the ability to live an active and mobile lifestyle. This typically translates into a preference for urban communities. In New Jersey, Jersey City and Hoboken have been millennial enclaves, where walkable, urban conveniences and access to mass transit options have been noticeably attracting young, college-educated workers for years.
“The office markets in Hoboken and Jersey City have gained a lot of attention, and many office occupiers have followed the migration of young, highly-skilled labor to Hudson County,” says Nicholas Hilton, senior vice president, CBRE.
The high cost of living in some of New Jersey’s premier live-work-play communities has driven many millennials to seek more affordable options that meet both their budget and their lifestyle interests; while this has led some to move out of the state, others are eager to find good opportunities elsewhere within the state. Options include some of New Jersey’s smaller, lower-density cities and suburban communities that have established downtowns with attractive rental housing, such as Morristown and Fort Lee.
Some developers have embraced the mixed-use concept and are deploying creative new ideas in traditional suburban settings. By building mixed-use developments that offer live-work-play environments with an abundance of amenities that appeal to the millennial workforce, these developers are offering prospective tenants a competitive edge in the war for talent, CBRE says. This translates into increased collaborative space and amenities, such as coffee and wine bars, high-quality fitness and sporting facilities, bicycle sharing and flexible food options.
Examples of where developers have successfully established these types of work environments include Bell Works in Holmdel, Warren Corporate Center in Warren and The New Jersey Center of Excellence in Bridgewater.
Looking at the numbers, with a 20.2 percent quarter-over-quarter decline in new leasing, the New Jersey office market struggled to maintain the momentum witnessed during the first quarter of 2017, recording only 1.82 million square feet of leasing activity in the second quarter, according to CBRE.
“This quarter revealed the onset of a ‘wait and see’ approach to real estate decision-making, which we believe arises from a sense of economic uncertainty fueled by political stalemates at the state and federal level,” said Joseph Sarno, executive vice president, CBRE. “Moreover, longer term, the growing share of millennials among the state’s working-age population has the potential to significantly impact future office market activity.”
Q2 2017 Analysis
Following the strongest first-quarter performance post-recession, CBRE’s analysis attributed the leasing fall-off to an absence of transactions exceeding 100,000 square feet in size. The second quarter’s most-notable leasing transactions were S&P Global’s commitment at 1 Independence Way in South Brunswick (74,845 square feet) and Withum, Smith & Brown’s lease at 1 Tower Center Blvd. in East Brunswick (46,234 square feet).
Looking to the second half of the year, however, the report struck an optimistic note in the midst of ten requirements greater than 100,000 square feet that are now active in the market.
Net absorption remained steady statewide into the second quarter. Central New Jersey had recorded positive absorption, while absorption in Northern New Jersey was negative. The primary submarkets driving positive momentum were the Route 287/78 Interchange and Princeton submarkets. Indeed, the Route 287/78 Interchange submarket achieved positive absorption for the first time since the second quarter of 2016.
While availability also remained stable statewide, several submarkets demonstrated significant improvements in their rates. Availability in the Route 287/Piscataway/Brunswick’s submarket fell 130 basis points (bps) to 21.9 percent — a level not seen since the fourth quarter of 2001.
The state’s weighted average net effective taking rate increased by $0.19 in Q2 2017, and now stands at $24.48 per square foot Only four of New Jersey’s submarkets posted an average taking rate above that of the overall state. Leading the list was the Waterfront submarket, with an average taking rate of $49.85 per square foot, followed by Urban Essex with an average of $33.01 per square foot.