Colliers Q4 Report: Balanced New Jersey Office Market Poised For Major Redevelopments, New Occupiers In 2014
By Mel Fabrikant Monday, January 27, 2014, 04:29 PM EST
--Residential, mixed-use conversions to reduce overall office inventory, drive up rents, as employment reaches highest peak since 2007--
– The Northern and Central New Jersey office sector continued to see a balance between supply and demand as 2013 came to a close, with the overall availability rate and average asking rent essentially flat quarter-over-quarter, according to new research from Colliers International.
In addition to the movement of major occupiers to New Jersey, several large-scale, build-to-suit redevelopment projects will bring new, state-of-the-art facilities to the state, energizing several sectors that had grown stale.
These projects will secure existing and entice new tenants to the State, bolstering confidence in the development and investment communities; while furthering the broad trend of gentrification that is improving New Jersey’s inventory. Employment in New Jersey has reached more than four million jobs, the highest level in the State since 2007, adding to confidence about the future.
As an added benefit, several of the major redevelopment projects include the conversion to residential and other mixed-use properties, thereby reducing the overall office inventory, driving down availability and putting upward pressure on asking rents.
“Distressed assets are quietly making their way through the deed-in-lieu or foreclosure process, putting many old or over-leveraged assets into the market at a reduced cost basis,” said Robert R. Martie, Executive Vice President of the New Jersey region for Colliers International. “This trend, combined with the revised New Jersey Economic Stimulus Act, has created new opportunities. They have also paved the way for occupiers to lease or purchase space at attractive terms so that they can spend the capital necessary to modernize or repurpose such properties.”
The overall availability rate in Northern and Central New Jersey remained relatively flat at 20.3 percent in the fourth quarter, up slightly from 20.1 percent in the third quarter. The availability rate in Northern New Jersey has remained on par with the overall availability rate, staying between 20.4 percent and 20.9 percent over the last five quarters and coming in at 20.6 percent during the fourth quarter of 2013. The availability rate in Central New Jersey was 20.0 percent, up slightly from 19.5 percent in the third quarter.
The overall average asking rent for Northern and Central New Jersey was also relatively flat at $23.49/sf, down seven cents from the previous quarter, with the average asking rent in Northern New Jersey at $24.33/sf, up from $24.19/sf from the third quarter, and $22.55/sf in Central New Jersey, down from $22.83/sf from the third quarter.
Meanwhile, overall net absorption in Northern and Central New Jersey remained steady with 1,083,312 square feet in the fourth quarter, down slightly from 1,145,138 square feet in the previous quarter and up from 926,202 square feet year-over-year.
In Northern New Jersey, leasing activity increased to 1,070,466 square feet, slightly higher than last quarter’s figure of 1,065,711 and down 39.2 percent from 1,761,101 square feet year-over-year. In Central New Jersey, leasing activity saw a similar drop at 542,276 square feet, down 60 percent from 1,416,127 square feet year-over-year and down 52 percent from 1,040,050 square feet last quarter. The decline in leasing activity year-over-year was impacted by several factors, including: major occupiers, like GAF at 1 Campus Drive in Parsippany, utilizing non-lease transactions to acquire new space at below replacement cost; the signing of Bayer’s relocation to Whippany, which caused a spike in leasing in the fourth quarter of 2012; and Merck’s choice to relocate from their Kenilworth campus, which was acquired in a merger.
Total employment in New Jersey grew by 70,000 jobs from November 2012 to November 2013, almost double the prior year’s pace and more than triple the 21,500 increase in jobs recorded from November 2010 to November 2011. At 4,002,500 total jobs, New Jersey is at 97 percent of the previous peak employment level of 4,125,200 jobs in December 2007.
Additional highlights from Colliers International’s 2013 Q4 New Jersey analysis:
Northern New Jersey
• In October, Haier Group announced the relocation of its U.S. headquarters from 1356 Broadway in Manhattan to 1800 Valley Road in Wayne, signing a 13-year, 58,000-square-foot lease. The tenant will be moving in after the owner, BET Investments, completes renovations.
• GAF purchased 1 Campus Drive in Parsippany and will relocate from its 29-acre campus at 1361 Alps Road in Wayne to the 380,000-square-foot building after renovations are complete.
• Vision Equities renovated two obsolete buildings, previously occupied by Alcatel-Lucent, totaling 650,000 square feet in the Whippany section of Hanover for Bayer. The remaining industrial space in the 1.35 million-square-foot campus is being converted to retail, residential, and medical space.
Central New Jersey
• Valeant Pharmaceuticals signed a 310,000-square-foot lease, moving its Bausch & Lomb subsidiary from Rochester, NY to 400 Somerset Corporate Boulevard in Bridgewater, NJ. Valeant received a 10-year, $39.5 million Grow New Jersey Grant from the state of New Jersey, and has agreed to maintain the 274 jobs it has in the state while adding another 500 jobs.
• Merck Pharmaceuticals decided to keep its global headquarters in New Jersey, relocating from 1 Merck Drive in Whitehouse Station to the 100 acre Campus in Kenilworth it acquired during its merger with Schering-Plough.
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