Employment growth in New Jersey continues to trend higher. Since the low point of the last recession in 2010, the state’s private sector has seen almost 409,000 new jobs added (through July).
Of the office-using industries, professional and business services have shown healthy annual job growth — up 13,900 jobs — while financial services jobs have recorded declines over the past year. Meanwhile, the state’s unemployment rate continued to tick lower to 3.3 percent (as of July), the lowest in its recorded history.
Within this context, the fundamentals of the New Jersey office market remain healthy as we enter the final quarter of 2019, with absorption totals remaining in the black, vacancies sinking lower and asking rents trending upward.
Regional Discrepancies
Northern New Jersey’s vacancy rate had dropped to 18.3 percent by the middle of 2019, the lowest point since the end of 2012, while central New Jersey checked in at 15.5 percent, marking four consecutive quarterly decreases. Space has tightened in some key submarkets, making landlords increasingly bullish.
Jason Price, Cushman & Wakefield
As a result, asking rents in Northern New Jersey have risen to $31.62 per square foot — an all-time high and a jump of 17.8 percent over the last four years. The direct average asking rental rate in central New Jersey has held steady, ticking up by 7 cents per square foot to $26.65 per square foot year-over-year.
At the close of the second quarter, total New Jersey office leasing activity had exceeded 4.1 million square feet, fueled largely by the life sciences, technology, legal, healthcare and educational services industries. Northern New Jersey saw a 14.3 percent increase in leasing volume over mid-year 2018, while Central New Jersey office leasing activity through June exceeded mid-year totals from six of the last seven years.
Key transactions during the first half of 2019 included Celularity’s 147,215-square-foot commitment at 170 Park Avenue in Florham Park. Renewals by Tyco Submarine Systems (186,790 square feet) at 250 Industrial Way West in Eatontown and IBM (131,000 square feet) at 194 Wood Ave. South in Woodbridge also contributed to positive absorption.
Smaller Deals Add Up
Yet small and mid-size leases were the true drivers of demand, with 72.6 percent of first- and second-quarter office activity involving deals under 50,000 square feet.
This is no surprise in a market historically fueled by smaller requirements. Even at times with below-average demand, this market can count on a constant churn of smaller requirements across the board — whether CBD or suburban — in office assets of all classes.
Through the third quarter, New Jersey has seen leasing slow down in some key submarkets and the additions of notable vacancies in others. Yet some large transactions, including Everest Reinsurance Co.’s 315,000-square-foot commitment at Warren Corporate Center in Warren Township (New Jersey’s largest 2019 office lease to date), helped to maintain balance.
Continued healthy demand and a handful of large requirements should keep activity steady, if at a slightly slower pace than earlier in the year.
When all is said and done, 2019 may be defined by tenants’ sustained flight to amenity-rich, high-quality office space. Through the first three quarters of the year, the majority of leasing activity took place at Class A properties and those that have been modernized with lifestyle-focused features and services.
This trend proves that owners that invest capital and upgrade their assets will see better results. Further, these assets are driving today’s historically high rental rates. Properties that provide environments in which tenants can attract the best talent and foster productivity are charging — and getting — premium prices.
What’s Next?
The New Jersey office market is poised to remain steady in the near term. Cushman & Wakefield is tracking a handful of notable leases that are expected to close in the coming quarters in Newark and Morris counties to the north, and the I-78 Corridor and Princeton/Route 1 Corridor submarkets in the central region.
This activity should help offset some looming vacancies and ultimately will net the continued slow and steady recovery of the New Jersey market. Looking ahead, we are seeing millennials beginning to make their move back to the suburbs as they age and have families. That, too, could have a significant positive impact on this market.
— By Jason Price, director of Tri-State Research, Cushman & Wakefield. This article first appeared in the October 2019 issue of Northeast Real Estate Business magazine.