Economic Opportunity Act Incentives Continue to Boost Activity as New Jersey Suburbs See Uptick in Office Leasing
Avison Young Releases Second Quarter 2014 New Jersey Office Market Analysis
Morristown, NJ – Aggressive incentives from the landmark New Jersey Economic Opportunity Act of 2013 (EO13) continue to stimulate office leasing and renewals in the state as companies target large blocks of space primarily in the suburbs, according to Avison Young’s second quarter 2014 New Jersey office market analysis, released today.
“In a strengthening state economy and stabilizing office market, companies in New Jersey continue to take advantage of the unprecedented incentives offered under the latest legislation,” comments Jeffrey Heller, Avison Young Principal and Managing Director of the firm’s New Jersey office. “Whereas activity in previous quarters was largely focused on the state’s urban centers, increased leasing in the suburbs during the second quarter clearly demonstrates the far-reaching effectiveness of these incentives.”
Avison Young’s report notes that, in a state from which residents and businesses were emigrating at steep rates in previous years, New Jersey has been particularly effective in retaining jobs through its incentives program. While the highest incentive bonuses are granted under the law to urban centers and transit hubs, businesses targeted nearby suburban areas during the quarter, seeking to capitalize on the more than $4 billion in tax credits approved by the New Jersey Economic Development Authority (EDA) since 2010.
According to Avison Young, the office vacancy rate in New Jersey increased slightly to 21.3% since the first quarter of 2014 as corporate consolidations and vacated space narrowly outpaced leasing activity. Despite the minor increase in vacancy, demand for high-quality office space remained strong, nudging the average asking rent to $23.59 per square foot (psf), a $1.01 increase year-over-year.
“While businesses continued to reassess their space needs to fit within an evolving workforce and technological landscape, the Economic Opportunity Act has been effective in counteracting consolidations and increased vacancies,” notes Matthew Dolly, Avison Young’s Vice-President of Research in New Jersey. “Overall, the outlook for the office market remains positive, as recent studies have indicated that business owners are optimistic about near-term company growth and hiring initiatives.”
Avison Young reports that, during the second quarter, New Jersey’s unemployment rate decreased to a six-year low, improving to 6.8%. A slow, but steady, economic recovery in the state has opened the door for growth in the small-business sector, although the firm cautions that the regional economy is not expected to reach its peak employment until 2018.
Northern New Jersey
In previous quarters, Avison Young reported torrid leasing activity in northern New Jersey, specifically in burgeoning cities such as Newark, Jersey City and Hoboken. During the second quarter of 2014, large-scale absorption in neighboring well-located suburbs helped to offset more than 500,000 square feet (sf) of commercial space coming to the market in the region. Overall, this leasing activity, spurred by EO13, slightly lowered the overall vacancy rate in northern New Jersey to 22.4% from 22.6% in the previous quarter.
Manufacturer Automatic Switch Co. (ASCO) headlined leasing activity in the area, acquiring a 250,589-sf vacant office building in Florham Park after contemplating relocation to North Carolina. The firm received a $9.1-million award from the EDA because the lease helped to offset a recent blitz of corporate downsizings in Morris County in recent years as the vacancy rate in the county fell to 27.7% from 31.4% one year prior. Other companies signing leases in Morris County during the past quarter include Emergency Medical Associates, Atlantic Health and FM Global.
Avison Young’s analysis also finds that, along with ASCO, several companies were retained in the region, stimulated by the tax credits from EO13. Unilever, which also considered space in New York and Connecticut, was awarded $40 million to stay in Englewood Cliffs, where it retained 1,600 employees. Nearby, 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. The anticipated relocation by Royal Bank of Canada would bring900 jobs from Manhattan, while JPMorgan has committed to remain in the state, retaining more than 2,600 jobs and adding 1,000 jobs in the next 10 years.
Central New Jersey
While northern New Jersey recorded office market expansion, second-quarter activity in central New Jersey was characterized by new availabilities in class A office space. In total, approximately 1 million square feet of space entered the market during the second quarter as the overall vacancy rate rose to 19.8% from 18.7% in the previous quarter.
Several large spaces hit the market in central New Jersey during the period, according to Avison Young. One of the most significant such offices was occupied by Avaya, whose +/- 300,000-sf space in Basking Ridge is now on the market, after the firm sold its corporate headquarters less than a year ago. Further south, Merrill Lynch left its 330,000-sf space in Pennington as long anticipated layoffs took their toll. In Metro Park, 153,000 sf of space became available as JPMorgan expands to its regional hub in Jersey City.
According to Avison Young, the departure of several businesses from central New Jersey left an abundance of high-quality, in-demand office space available in the area as asking rents rose for the third consecutive quarter, reaching $23.12 psf. Sandoz, the generic pharmaceutical division of Novartis, absorbed 154,101 sf of this space in Princeton after briefly considering a move to Pennsylvania.
Avison Young is the world’s fastest-growing commercial real estate services firm. Headquartered in Toronto, Canada, Avison Young is a collaborative, global firm owned and operated by its principals. Founded in 1978, the company comprises 1,500 real estate professionals in 58 offices, providing value-added, client-centric investment sales, leasing, advisory, management, financing and mortgage placement services to owners and occupiers of office, retail, industrial and multi-family properties.
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