Raymond Trevisan, Cassidy Turley
Cassidy Turley recently released its Third Quarter Office Market Snapshot for Northern and Central New Jersey. We detailed the absorption rates, asking rents and availability in both Central and Northern New Jersey and found the Grow NJ tax incentives and the movement of midsize companies played significant roles in shaping the market. Although not shocking revelations, these factors help explain surges and lags and why some markets are still feeling the crunch of previous quarters, even though employment rates have increased.
Shifts in the Newark submarket, particularly Prudential vacating large portion of 3 Gateway Center and moving into its own office tower, created an uptick in availability. The resulting availability at the Gateway complex was a large factor in the 86,084 square feet of negative absorption recorded during the third quarter throughout Northern New Jersey. However, the impact was lessened as the owner of 3 Gateway recently announced Prudential has signed a lease to maintain a 160,000-square-foot presence in the building based on significant internal growth.
Interestingly, in many submarkets, the development of a new office building indicates a thriving economy. However, Newark’s economic recovery has been slow. Panasonic’s recent move to a new headquarters and the development of new hotels and retail, including a highly anticipated Whole Foods Market, should provide an additional boost. Both Panasonic and Prudential are benefitting from significant tax incentives, validating the impact of the Grow NJ program on Newark’s local economy. The Hudson Waterfront, already boasting one of the lowest availability rates in Northern New Jersey, is also benefitting from the program as availability rates continue to decline.
Although the Central New Jersey submarket posted 39,353 square feet of negative absorption during the third quarter, the market saw a dramatic improvement in absorption over the previous quarter. Midsize companies are having an impact on the market by either consolidating or relocating to more efficient spaces. Sun National Bank moved out of its 22,232-square-foot space at 105 Fieldcrest Avenue and several midsized companies vacated space in Monmouth County, contributing to the negative absorption in Central New Jersey. The slight improvement is the result of leasing activity in the Brunswick/Piscataway/I-287 and Princeton submarkets with a combined 90,117 square feet of positive absorption. Most notably, TRAC Intermodal leased 80,273 square feet at 750 College Road East in Princeton and An-Noor Academy leased 19,500 square feet at 220 Centennial Avenue in Piscataway. Availability dipped in Central New Jersey to 22.8 percent and asking rents rose to $24.93 per square foot, which indicates improving market conditions. We can expect further growth as higher employment leads to greater demand in the market.
As the economy continues to improve and employment rates rise, there will be a greater demand for efficient office space, especially in Central New Jersey. Asking rents will continue to rise as the flight to quality trend continues.
The role of Grow NJ should not be underestimated in retaining and attracting companies to the Garden State. Each quarter, these factors may vary slightly and produce upticks or downturns in activity. The overall consistent factor is both large and midsize companies are using office space differently than they did 10 years ago, and the market will continue to evolve and reflect the shift from corner offices to open collaborative work environments before reaching equilibrium.
— By Raymond Trevisan, Managing Principal, Cassidy Turley. This article first appeared in the November/December 2014 issue of Northeast Real Estate Business magazine.