Strengthening Performance Signals Good Things to Come for Northern New Jersey Office Market
Strengthening office performance in the northern New Jersey marketplace signals good things to come as 2019 unfolds. The market yielded approximately 292,000 square feet of net occupancy gains in 2018. This was fueled by three straight quarters of more than 1 million square feet in new leasing activity, with annual demand finishing 15.4 percent ahead of 2017.
This progress runs parallel to improving employment numbers. At year-end, the Garden State unemployment rate registered at 4 percent, its lowest point since mid-2001. This marks a 70-basis-point decline year-over-year, with private-sector employment increasing by almost 62,000 jobs.
Within this context, the diversity of New Jersey’s tenant mix is making itself apparent. No one sector is predominantly making waves. We are seeing healthy Class A leasing activity among life sciences, technology, financial, professional services and a range of other space users that comprise the state’s balanced occupier base.
Last year was proof that both urban and suburban submarkets continue to thrive. Where one company prefers the Hudson Waterfront with immediate access to mass transit and ability to draw talent from New York City, another may seek a suburban campus that draws upon a labor force of commuters driving from the state’s western counties and eastern Pennsylvania. New Jersey’s ability to cater to both “extremes” is one of the reasons why such a variety of corporations will continue to grow here.
Among these fluid variables, one constant has emerged. New Jersey corporate tenants today are focusing intently on workplace strategy, particularly in the areas of operational and spatial efficiencies. Open layouts versus office-intensive configurations remain in vogue. The incorporation of collaborative spaces and bench seating is helping to reduce square footage per employee, while keeping up with the latest technology remains critically important to maximizing productivity.
With the ultimate objective to retain valued employees and recruit new talent, the most savvy companies are looking for work environments with a little more of a “wow factor.” As such, highly amenitized, Class A assets are outperforming the dated inventory of office product. These properties will continue to boast higher occupancy levels and charge a premium, especially with the labor pool becoming so competitive. We are definitely seeing landlords with stale inventory implementing significant capital improvement programs in order to keep up with the demand for flight to quality.
We are also watching the growing demand for flexible office space solutions. The market for shared accommodations is growing commensurate with an expanding tenant base of young and volatile businesses. These organizations do not know where they are going to be and what they are going to need in two months or two years — let alone five or ten. But they do know they can benefit greatly from a shared office suite environment with flexible lease terms. In turn, we are seeing strong leasing activity among coworking companies, largely in Class A buildings with immediate access to mass transit locations.
Working in advance
Overall, today’s corporate priorities are yielding a more consultative approach in the commercial real estate leasing process. We are working with our clients 12 to 24 months prior to a lease expiration. During this time, we begin to define our client’s goals in order to tailor a real estate solution that will complement their future needs.
We develop a workplace strategy that will maximize efficiencies and reduce overall operating costs. We perform labor studies and zip code analysis in order to support decisions based upon geography. We run in-depth financial analyses and market studies. We work with our project management team to understand constructions costs and our tax incentives team in order to make sure that we are taking advantage of all opportunities. All of these studies (and more) become the building blocks necessary for our clients to make the best possible business decision as it relates to their real estate.
Currently, transactional and touring activity indicates further stabilization for the northern New Jersey office market beyond the first quarter of 2019. We are seeing the initial activity from a diverse industry population with demand in both urban and suburban areas. While prospective users may have different wants and needs, they all share a common goal to create efficiencies and foster productivity in workplaces that appeal to today’s discerning skilled professionals.
— By Dan Johnsen, Managing Director, Cushman & Wakefield