Northern New Jersey Shows Strength in Office Construction and Redevelopment
Despite a slow start to the year, the Northern New Jersey office market decreased vacancy to 20.2 percent as we moved from fourth quarter 2016 into 2017. More than 750,000 square feet of office space is expected to be absorbed in the market to drop the vacancy rate 20 basis points. New deliveries in Morris and Essex Counties, including a 200,000-square-foot office for UPS in Parsippany, are leading the way. Moreover, landlords and investors alike are upgrading and investing in larger redevelopment projects throughout the state which has increased leasing activity.
In response to healthier market conditions, owners have also increased rents for office space, which caused higher vacancy rates at the beginning of the year. The average asking rent is anticipated to climb to $27.59 per square foot this year, outpacing the 2 percent rise in office rents posted in 2016. In first quarter, the Hudson Waterfront saw an increase of 3.6 percent per square foot.
The main trends in Jersey City and Hoboken are driven by the large populations of millennials in and around surrounding areas. Millennials account for 27.2 percent of the population in Hudson County. In the last 12 months, investors — particularly New York buyers — have focused on assets that could be repurposed or upgraded. Revitalization of downtown Jersey City continues to spur investor interest.
Recent leasing activity in the Hudson Waterfront area includes Jet.com’s 39,990-square-foot lease on River Street in Hoboken. The market has a total inventory of 21.72 million square feet with an availability rate of 19.6 percent. The average asking rent is $36.58 per square foot.
Essex, Morris, and Union County
In the last few years, demand has caused drastic changes throughout Newark and the surrounding area. According to research, Newark has had one of the highest demands in the state of New Jersey. The area, including the township of Parsippany, has seen more than 150,000 square feet of leasing activity. Medical office completions will be high this year, with 120,000 square feet anticipated for delivery. The largest medical office space to be completed this year is the 86,000-square-foot Clara Maass Medical Center in Belleville, New Jersey. Many New Yorkers are relocating or expanding businesses from New York to Northern New Jersey due to the easy access in and out of New York City.
Recent leasing activity in Newark and surrounding counties includes Newark Public Schools’ 100,500-square-foot lease on Broad Street. Sales activity rose 21 percent in the last 12 months, led by strong increase in trades in Essex and Union counties. The market has a total inventory of 15.54 million square feet, with an availability rate of 16.4 percent. The average asking rent is $29.38 per square foot. Intense competition for properties in some of the best locations in Northern New Jersey will drive investors to more affordable areas such as Morristown, Parsippany and Newark.
One of the most interesting stories in Newark this year is Audible’s decision to subsidize housing for some employees who are willing to move to Newark near the company’s headquarters in an effort to support the revitalization efforts there.
High demand for office space near transit with upgraded amenities will help maintain strong deal flow in 2017, driving more investors to acquire properties in more suburban destinations. Tenants and investors should watch the Hudson Waterfront submarket and Newark. Demand continues to be high in the Jersey City market. Some of the best properties in the urban areas of Jersey City and Hoboken are trading at a 5 to 6 percent cap rate. In Essex County, Newark’s low vacancy rate continues to attract investors while the economy is at its peak. The unemployment rate is at 4.1 percent, which is the lowest it has been since June 2001. Jobs are increasing and companies are expanding, therefore vacancy rates in Northern New Jersey will continue to decrease.
— By Anthony Gomez, managing principal, REMAX Commercial Investment Associates. This article first appeared in the October 2017 issue of Northeast Real Estate Business magazine.