2nd Quarter 2014
New Jersey Office Market Overview
Partnership. Performance.
Overview Snapshot
New Jersey
The highly anticipated New Jersey Economic Opportunity Act of 2013 (EO13)
continues to stimulate the office market. This quarter, companies are absorbing
large blocks in suburbs where tax credits are not as generous yet still adequate
enough to keep them in New Jersey.
Northern New Jersey
The market is showing signs of improvement, assisted by State incentive
programs. Despite six new listings of greater than 50,000 square feet coming
to the market during the quarter, increased leasing activity has offset the new
availabilities.
Central New Jersey
Nearly one million square feet of space was returned during the quarter, driving the
overall vacancy rate up to 19.5%, compared to 18.7% both the previous quarter and
year-over-year. The availability of new space is predominantly in class A product,
raising asking rents for the third consecutive quarter.
New Jersey
2nd Quarter 2014
Office Market Monitor
New Jersey Office Market Report
Partnership. Performance.
Market Facts
Vacancy Rates
21.5%
21.0%
20.5%
20.0%
19.5%
19.0%
YE09 YE10 YE11 YE12 YE13 2Q14
Asking Rents
$25.00
$24.00
$23.00
$22.00
$21.00
YE09 YE10 YE11 YE12 YE13 2Q14
Net Absorption
2,000,000
0
(2,000,000)
Market Takeaway
New Jersey Overview
The New Jersey Economic Opportunity Act of 2013 (EO13) was signed into law more
than nine months ago. The Act was designed to achieve an economical edge over
neighboring and other competing states when recruiting business to New Jersey.
While a modest number of businesses have been successfully courted, the State
has been decidedly more effective in rewarding incentives to retain companies
who threaten to flee, a position that has been strongly debated.
During the previous quarter, tenants signed leases in the urban transit hub cities
where increased incentives are offered for job creation and retention. This quarter,
companies are absorbing large blocks in suburbs where tax credits are not as
generous yet still adequate enough to keep them in New Jersey. For example,
Automatic Switch Co., or ASCO, acquired a vacant building formerly occupied by
AT&T in Florham Park. The manufacturer will relocate from across town where it
had maintained its operations for 80 years in property that has become functionally
obsolete. Also, Sandoz, Inc. agreed to relocate from Princeton to Plainsboro, enticed
by $9.1 million from the State’s Economic Development Authority (EDA).
Three other firms were recently offered tax credits to retain and/or grow jobs in New
Jersey. Unilever, who also considered New York and Connecticut, was rewarded $40
million to stay in Englewood Cliffs where it has 1,600 employees. Financial firms
RBC Capital Markets (Royal Bank of Canada), and JPMorgan Chase were offered
$78.7 million and $224 million, respectively, to lease space in Jersey City. RBC would
bring 900 jobs from Manhattan while JP Morgan would retain more than 2,600 jobs
in the State while adding 1,000 jobs over the next 10 years.
While there is no question that the highly anticipated EO13 has stimulated the office
market, a considerable amount of corporate consolidations are offsetting increased
leasing. For the quarter, the amount overall vacancy rate inched up to 21.3 percent,
compared to 21 percent both the previous quarter and year-over-year. Despite
the slight increase in vacancy, asking rents remain on an upward climb, and now
average $23.59 per square foot, rising $1.01 during the past 12 months.
(4,000,000)
(6,000,000)
YE09 YE10 YE11 YE12 YE13 YTD14
Varying reports on the state of the economy persist. New Jersey’s unemployment
rate fell in May to 6.8 percent, but the State has only recovered 50% of private
sector jobs since peak employment. While the State’s economy recovers slowly,
employment is not expected to reach its peak until 2018, and employee workspace
requirements are much smaller, yet more collaborative. Therefore, patience will be
necessary as the slowly growing small business sector begins to fill large blocks of
vacant office space left behind by blue-chip tenants.
E. & O.E.: The information contained herein was obtained from sources which we deem reliable and, while thought to be correct, is not guaranteed by Avison Young
Market Takeaway
Northern New Jersey Overview
Despite continued corporate consolidations, the market is
showing signs of improvement, assisted by State incentive
programs. During the second quarter of 2014, six new listings
of greater than 50,000 square feet came to the market, totaling
more than a half million square feet. However, increased
leasing activity has offset the new availabilities, and the overall
vacancy rate dipped slightly to 22.4%. Morris County is perhaps
the best example of an area that has suffered several corporate
downsizings over the past few years. Most recently, 130,740
square feet of space occupied by Time, Inc. in Parsippany was
put on the market as it reduces head counts. However, the
overall vacancy rate in Morris County has improved from 31.4%
to 27.7% over the past year.
ASCO accounts for 250,589 square feet of absorption for Morris
County, relocating from a 400,000 square foot industrial facility.
In 2012, ASCO was approved for $24.5 million under the Grow
New Jersey Assistance program. The incentives were deemed
necessary as the State feared it might make the switch to North
Carolina, where it is also growing. Other companies signing
leases in Morris County during the quarter include Emergency
Medical Associates, Atlantic Health and FM Global.
The Hudson Waterfront remains an area of interest as indicated
by the aforementioned potential commitments of JPMorgan
Chase and RBC Capital Markets. A reverse trend away from
suburbia and into walkable, transit-friendly downtowns,
triggered by tech-savvy millennials, is expected to continue for
some time.
Central New Jersey Overview
Severely impacted by job cuts and potential relocations, the
office market suffered a bit of a setback during the quarter.
Nearly one million square feet of space was returned during the
quarter, driving the overall vacancy rate up to 19.5%, compared
to 18.7% both the previous quarter and year-over-year. The
amount of vacant space is at its highest level since the first
quarter of 2013. The availability of new space is predominantly
in class A product, raising asking rents for the third consecutive
quarter to $23.12 per square foot, the highest average since the
first quarter of 2009.
While JPMorgan is incentivized by the State to expand at its
regional hub in Jersey City, more than 153,000 square feet of
its space in Metro Park is now available. In Pennington, 330,000
square feet of space occupied by Merrill Lynch is now on the
market. Layoffs had been expected since the investment
firm was acquired by Bank of America in 2008. Further north,
+/- 300,000 square feet of space at 211 Mount Airy Road in
Basking Ridge, formerly occupied by Avaya, is now on the market.
The communications provider sold its headquarters less than a
year ago. GE Healthcare Life Sciences, located in Princeton and
Parsippany, plans to consolidate its operations in Massachusetts,
which will affect +/-400 employees.
On a positive note, Sandoz, the generic pharmaceutical division
of Novartis, was considering relocation to Pennsylvania but
decided on 154,101 square feet on College Road in Princeton.
The plans are to retain nearly 300 jobs and add another 70 in
New Jersey.
Recent Tenant Activity
Tenant Name
Address
City
Automatic Switch Co.
160 Park Avenue
Florham Park
250,589
Sandoz, Inc.
100 College Road West
Princeton
154,101
Celgene
110 Allen Road
Bernards Township
Contact Information
avisonyoung.com
© 2014 Avison Young Commercial Real Estate (New Jersey) Inc., Brokerage
E. & O.E.: The information contained herein was obtained from sources which
we deem reliable and, while thought to be correct, is not guaranteed by Avison
Young. Acknowledgement: Data for graphs, charts and tables used in this report
are sourced from Avison Young and Altus InSite. Some of the data in this report has
been gathered from third party sources and has not been independently verified
by Avison Young. Avison Young makes no warranties or representations as to the
completeness or accuracy thereof.
Matthew Dolly
1120 Headquarters Plaza, West Tower, 4th Floor
Morristown, NJ 07960
P 973.898.4016
matthew.dolly@avisonyoung.com
Square Feet
95,847