Adaptive Reuse Gaining Momentum in New Jersey Office Market
By Mel Fabrikant Wednesday, February 13, 2013, 06:03 PM EST
An adaptive reuse trend in the New Jersey office market is coming at a time when flight-to-quality is tapering off, according to CBRE New Jersey’s Fourth Quarter 2012 New Jersey Office Marketview Report. The major fourth quarter lease by Lam Cloud Management for 494,000 sq. ft. at 1 Continental Drive in Cranbury, with plans to convert the building into a data hosting facility, was a recent example of this trend.
“In the coming years, office conversions will likely be a long-term trend as tenant demand continues to move away from facilities located in suburban settings toward more urban, community-friendly settings with convenient mass transit accessibility,” said Edward DaCosta, executive vice president, CBRE New Jersey. “The cost of fuel is increasing, the trend by corporations to increase workspace density is placing a strain on traditional parking ratios and a lot of younger workers are looking to be in urban areas.”
The Cranbury property is one of many being converted to alternate use. Both 1 Executive Drive in Fort Lee and 450 Harmon Meadow Boulevard in Secaucus are slated for conversion from office to residential and hotel use, respectively.
Leasing velocity for office space was relatively higher in the fourth quarter, closing with 1,575,505 sq. ft. of leased space, highlighted by the Lam Cloud Management transaction, which was the largest of the year. EMC Corporation became the first tenant at 184 Liberty Corner in Warren, leasing 92,077 sq. ft. The Princeton submarket posted the highest leasing velocity this quarter with 523,419 sq. ft., followed by Route 287/78 Interchange at 137,594 sq. ft. and Central Bergen with 133,460 sq. ft.
Class A space accounted for only 41 percent of leasing activity in Q4 2012--a 28 percent decline from Q4 2011-- a further indication that the flight-to-quality trend is waning. While the availability rate has declined in some select properties close to major transit hubs, it has stabilized over the last two years to finish 2012 at 21.3 percent. The Montvale/Woodcliff Lake submarket, as well as Route 17 Corridor and Waterfront, posted the lowest availability rates.
Asking rents increased $0.19 from the third quarter to $24.27 per sq. ft. Direct average asking rents increased $0.21 to $24.75 per sq. ft., with two submarkets seeing rents greater than $30.00 per sq. ft.: Chatham/Millburn/Short Hills at $35.45 per sq. ft. and Waterfront at $31.84 per sq. ft.
“Although the leasing velocity and activity for all of 2012 was not as encouraging as we would have liked, we’re hopeful that the positive results from the fourth quarter will be indicative of a stronger 2013,” said Jeffrey Babikian, executive vice president, CBRE New Jersey. “The presidential election, the fiscal cliff and the continued high unemployment rate left New Jersey’s fourth quarter in a state of uncertainty. However, with more than 14 million square feet of leases expected to roll over in the next 18 months, tenants will have some decisions to make and that will drive demand in the next year.”