Adaptive Reuse Projects Spur Growth in New Jersey Office Market
Adaptive reuse and redevelopment projects along with a robust job market—particularly in the financial and professional services sectors—are the linchpins driving New Jersey’s office market growth.
The availability rate, which is at its lowest point in nine years, has improved thanks to the repurposing of obsolete office product. Last year, 12 properties totaling 2.3 million square feet were marked for redevelopment, taking them out of inventory. Through the first half of 2018, 20 office properties totaling 2.7 million square feet are slated for redevelopment, which will further lower the availability rate.
The redevelopment of these spaces has also steadily driven up Class A asking rents over the past three years by 6.1 percent to 29.62 per square foot.
The positive momentum in the market can also be attributed to the 4.2 percent unemployment rate, a 10-year low, and incentive programs, like Grow NJ, that have attracted and retained businesses in the Garden State, sustaining demand.
The most significant adaptive reuse project currently under way is at 110 Edison Place in Newark. Also known as Ironside, the 22-acre project will transform a historic obsolete building at the corner of Edison Place and McCarter Highway into a 450,000-square-foot state-of-the-art office and retail building. The seven-story building, with direct access to Mulberry Commons Park, is expected to be completed by the end of the year.
Mars Wrigley has already committed to Ironside, inking a 148,460-square-foot long-term lease for the top three floors. The company will bring 483 jobs to Newark, of which 113 will be relocated from Chicago, with the remainder consisting of employees moving from Hackettstown.
Another project, 1000 Maxwell Lane, is currently under construction in Hoboken, which will bring much-needed new office space to the city once completed. The mixed-use project consists of ground floor retail, 110,000 square feet of office space and residential condos on the top floors.
Life sciences and financial services aren’t just responsible for the state’s improving job market, they are also driving the leasing activity as well.
The pharmaceutical/life sciences industry accounted for 21.2 percent of New Jersey’s total leasing activity so far in 2018. Major leases include Teva Pharmaceuticals, which took 345,488 square feet at 400 Interpace Parkway in Parsippany; PTC Therapeutics’ renewal of 90,000 square feet at 100-250 Corporate Court in South Plainfield; Alvogen’s 84,609 square feet at 44 Whippany Road in Morristown; and Lonza, which renewed and expanded to 74,659 square feet at 412 Mount Kemble Avenue in Morristown.
Financial services firms, which accounted for 11.7 percent of leasing activity, and insurance companies with 8.3 percent, rounded out the top three.
While the northern New Jersey market had a slow start, the Newark and Hudson Waterfront submarkets have seen strong demand due to their local amenities, connectivity to New York City, and newer buildings sporting modern office space. These are viable submarkets for tenants looking to capitalize on the burgeoning live-work-play environment that appeals to millennial employees.
E*Trade, for example, expanded and extended its lease to 130,569 square feet at 2 Harborside Financial Center in Jersey City, as the company brings its customer technical services from the Philippines to Jersey City. The company’s location provides direct access to New York via the Newport PATH Station and dining and shopping in Newport Center mall.
Central New Jersey submarkets have performed a bit better than their northern counterparts, with the Princeton and Metropark regions capturing a majority of the state’s space demand.
Companies such as Integra Life Sciences, Billtrust, Michael Baker International and PeproTech have grown and relocated within the greater Princeton Area submarket thanks to its proximity to many universities and access to both New York City and Philadelphia.
Similarly, the Metropark submarket benefits from its ideal location as the dividing line between northern and central New Jersey. Metropark boasts direct access to major highways and a rail station that services both New Jersey Transit and Amtrak, an appealing amenity for major corporate users like Plymouth Rock, which relocated from Red Bank to 129,000 square feet in Woodbridge earlier this year.
The average asking rent for the Metropark submarket continues to hover around $30/SF, making it the highest priced submarket in central New Jersey. We expect to see this trend continue in the coming quarters as demand remains high and no major blocks of space are projected to come online, which will encourage landlords to test the market by increasing their average asking rents.
New Jersey as a whole, has also demonstrated its ability to compete against other cities and states, securing companies like Teva Pharmaceuticals, which moved its U.S. headquarters from Pennsylvania to 345,488 square feet in Parsippany. Ralph Lauren Corp. contemplated a move to North Carolina but eventually choose to stay in New Jersey, relocating to 255,000 square feet at the former Roche campus in Nutley. Integra Life Sciences consolidated their operations under one roof in Princeton, leasing 166,791 square feet at 1100 Campus Road.
Given the state’s location and diverse, well-educated population, New Jersey will continue to be a competitive office market. Despite the projected July 2019 sunset of the successful Grow NJ program, which might be replaced by alternate incentives, demand continues to increase, and New Jersey’s office market should maintain a sustainable level of growth.