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From a macro perspective, the Northern New Jersey office market has remained stagnant and continues to tread water. In 2012, corporations with capital stayed on the sidelines. The overall availability rate hovered around 21 percent with an average asking rent of $24.29 per square foot at the close of the fourth quarter, and those numbers were not expected to change much in the first quarter of this year.
The few recent significant leasing transactions were not enough to move the occupancy needle. The biggest deals were Biomet Bone & Spine Healing Technologies’ lease of 102,224 square feet at 399 Jefferson Road in Parsippany; EMC Corp.’s lease of 81,700 square feet at 184 Liberty Corner Road in Warren; and Tower Insurance Co.’s 76,892-square-foot lease at Harborside Financial Center II in the Jersey City Hudson Waterfront project.
The Tower Insurance lease was a boost to the Hudson Waterfront market. For a long time, the waterfront was one of the few bright spots in the state with even a brief period of rent growth. However, in 2012 a large amount of shadow space came on the market and led to roughly 500,000 square feet of negative absorption. With the election year over, it will be interesting to see if the waterfront will rebound.
Over the recent 18 months, Metropark has seen the most consistent activity in the state. This micro-market is located in the Woodbridge Township of Middlesex County and is somewhat unique for New Jersey office space in that it comprises institutionally owned, high quality assets with close proximity to major transportation. As a result, the properties have been able to attract the most creditworthy and notable tenants, such as Hatch Mott MacDonald and EisnerAmper.
Morris Plains may see a bump in activity beginning in 2015, when Honey-well moves its headquarters there and leaves neighboring Morris Township. When a user this size (with approximately 1,000 people at its headquarters) makes any move, it usually has a big impact on the surrounding marketplace.
In February, Honeywell signed an agreement to buy 40 acres, a 475,000-square-foot complex and a parking garage from McNeil-PPC Inc., a subsidiary of Johnson & Johnson. The purchase is subject to approval of its application with the Economic Development Authority for a $40 million Grow N.J. Assistance Program incentive. Honeywell uses only half of its campus in Morris Township and wants a more efficient headquarters facility.
Most investment office sales in Northern New Jersey have been under-performing or troubled assets that need to be repositioned. Many of these properties have high vacancy rates and have traded between $25 and $60 per square foot. CMBS rollover continues to impact individual submarkets and a number of buildings have gone back to their respective lenders.
However, top quality investment grade assets have traded at extremely low capitalization rates. In most cases, those transactions were driven by institutional buyers that actively pursued the few opportunities that meet their investment criteria.
Looking ahead, there are at least 10 significant and potential lease transactions greater than 100,000 square feet in various stages from initial search to negotiating terms. When they close, the transactions will substantially impact their relative submarkets.
Some of recent trends in the New Jersey office market are expected to continue in 2013, such as ‘flight-to-quality’ by tenants and price-driven deals as users focus on their bottom lines.
Now that we are past the presidential election and the associated uncertainty, the brokerage community here is optimistic that corporate growth will return to ‘normal’ levels but that remains to be seen.
— Michael Witko, senior vice president of The Garibaldi Group/CORFAC International, and Anthony Rinaldi, vice president of The Garibaldi Group/CORFAC International