Looking at the Positives in the Northern New Jersey Office Market

• Regional employment continues to improve.

• Facebook is more than doubling its occupancy in Manhattan.

• Merck made it official and is listing its 1-million-square-foot campus for sale.

• Governor Chris Christie signed into law the Economic Opportunity Act of 2013.

Regional employment continues to improve. Northern New Jersey falls within an MSA that includes New York City, Long Island and a portion of Pennsylvania. The unemployment rate for this MSA stood at 8 percent in August this year compared with 9.5 percent in July 2012, according to the Federal Reserve Bank of St. Louis.

Using the theory that a rising tide floats all boats, the more people at work in the region, the better our economy performs. And everyone who works in real estate knows that real estate absorption is connected to one thing and one thing only: jobs.

Facebook recently inked an office lease at 770 Broadway in Manhattan for one floor of 85,000 square feet and a portion of a second floor, which more than doubles the approximately 40,000 square feet the social networking company currently occupies in New York City.

That’s important for Northern New Jersey’s office market because as tech companies expand in Manhattan, it increases the likelihood of the spillover effect for submarkets on this side of the Hudson, principally in Jersey City (for back-office purposes) and Bergen County. In fact, the Hudson Waterfront submarket has one of the lower vacancy rates in New Jersey at 8.8 percent, according to the third quarter report by CoStar Group.

New Jersey is home to some of the biggest biotech and pharmaceutical companies in the U.S, such as Sandoz Inc., Covance Inc., Novo Nordisk and Merck & Co. More than 150 companies in these sectors are here, according to www.thelabrat.com, a website that tracks biotech and pharmaceutical industry jobs in New Jersey. Thus, when Merck listed its Whitehouse Station headquarters for sale in early October and said it would cut an additional 8,500 jobs and reduce annual costs by $2.5 billion by the end of 2015, it was a blow to local employment (even though the plan was announced a year ago). Merck intends to consolidate in Kenilworth.

While the Merck news is not the best of news out of this industry sector, on the flip side, Novo Nordisk completed one of the biggest leases in the third quarter at Princeton Forrestal Center, with a 770,000-square-foot lease. The transaction was a consolidation and net expansion for Novo Nordisk.

Some of the largest transactions in the quarter were Deposit Trust & Clearance (415,000 square feet in Jersey City), Coldwell Banker Real Estate Corp. (270,000 square feet in Parsippany) and AT&T signed the largest lease renewal for 275,000 square feet at 30 Knightsbridge Road in Piscataway.

On September 18, Governor Chris Christie signed into law the Economic Opportunity Act of 2013, which streamlines New Jersey’s five existing economic development incentive programs into two: the Grow New Jersey Assistance Program, which is focused on jobs, and Economic Redevelopment and Growth program, which will be the state’s key real estate development program.

I attended a presentation by our Lt. Governor Kim Gaudagno on this with 150 business executives in the room, and when she finished her presentation, she gave all of us her cell phone number and told us to call her with any questions, and that she or someone from her office would return the call within 24 hours. It was quite a statement on how serious the state is about becoming a much friendlier labor market and attracting new businesses here.

In terms of core real estate market conditions, the Northern New Jersey office overall office vacancy rate was 14.4 percent at the close of the third quarter, which is about the same as the second quarter this year though a little lower than a year ago. There was 545,000 square feet of positive net absorption in the period, according to CoStar, which followed two earlier quarters with positive net absorption: 1.3 million feet in the second quarter and 1.5 million feet in the first quarter. That’s pretty good, though not outstanding, given the size of the market, which totals about 356 million square feet.

Arguably the economic hub of Northern New Jersey, the Princeton submarket has had positive absorption of 1.5 million square feet through the first three quarters this year, and yet it is still about 14.5 percent vacant. The office inventory in Princeton is approximately 44 million square feet.

Average asking rent for the 11-­county Northern New Jersey market was $23.20 per square foot at the end of the third quarter.

There is approximately 520,000 square feet of new construction pending delivery, with the largest project going up in Ocean City, called Meridian Health Village at Jackson. When complete, it will be 150,000 square feet.

Looking ahead, the Northern New Jersey office market is likely to continue its modest and slow improvement in terms of greater absorption and lower vacancy rates but we’re not expecting any dramatic changes. A market this large and mature is like a tanker ship in a bay — it is not easy to turn.

In closing, when I talk to people around the country, everyone wants to know how the big 2012 storm affected our real estate markets. Hurricane Sandy caused a loss of approximately $82 million in state revenue in fourth quarter 2012, according to the Rutgers University Edward J. Bloustein School of Planning and Public Policy, January 2013 Regional Report. However, the disastrous storm had little-to-zero impact on New Jersey’s office market. The storm barely moved any of the data needles in the fourth quarter last year or the first three quarters this year.

— Robert Tillsley, president, national services with McBridge Corporate Real Estate/CORFAC International. Tillsley is the 2014 President of CORFAC International