Life Science and Healthcare Sectors are Prescription for Keeping New Jersey Office Market Healthy
Avison Young releases second quarter 2013 New Jersey office market analysis
Morristown, NJ – The second quarter of 2013 revealed that the New Jersey office market is being resuscitated through the combined impact of the life science and healthcare industries. Five of the top six lease transactions that contributed to office space absorption during the second quarter were by these sectors, reinvigorating New Jersey’s reputation as the “Medicine Chest” of the United States and helping to bring about thelargest decrease in New Jersey’s overall office vacancy rate since the third quarter of 2011.
These are some of the key trends noted in Avison Young’s second quarter 2013 New Jersey office market analysis, released today.
Second-quarter activity was driven by the redevelopment of aging office complexes to accommodate the needs of healthcare and life sciences firms, either through retrofitting them for higher and better use or modernizing the existing infrastructure. Prime examples are located in:
- Central New Jersey, where Memorial Sloan-Kettering acquired a former 287,000-square-foot (sf) Lucent Technologies facility in Middletown to convert the property from an office building into a hospital, cancer treatment center and data center; and
- Northern New Jersey, where Spectra Laboratories renewed its lease and expanded from 107,000 sf to 191,000 sf, with plans to retrofit its headquarters facility in Rockleigh.
“New Jersey’s healthcare industry is the fastest growing market sector in the state, adding 171,100 new jobs from 1990 through 2011, while all other private sector employment has had a net increase of only 6,800 jobs,” comments Jeffrey L. Heller, Avison Young Principal and Managing Director of the firm’s New Jersey office. “The ongoing growth by these two sectorsis helping to fuel office market activity and strengthen conditions, particularly in central New Jersey where the presence of life science companies is so prominent.”
The life sciences industry in New Jersey is home to more than 350 biotechnology companies and 17 of the 20 largest pharmaceutical companies, employs 121,000 people, and contributes more than $58 billion to the state economy.
“It is our belief that the healthcare industry will continue to be a robust market as a result of New Jersey’s and the overall country’s growing aging population,” notes Matthew Dolly, Avison Young’s Vice-President of Research in New Jersey. “According to the U.S. Census, baby boomers make up the largest increase of all age groups, providing the foundation for a continued and increasing demand for healthcare and life science services and products. This will have a subsequent, positive impacton the New Jersey office market.”Heller adds: “At Avison Young, we have seen the demand for assets appropriate for medical use rise. In fact, we have recently been working with numerous clients in this space, including urgent care groups, dialysis centers, dental groups, radiology groups and sports medicine groups that appreciate our ability to truly understand their needs and identify the space solutions that will help optimize their business.”
According to Avison Young, the New Jersey office market experienced positive net absorption of 676,000 sf during the second quarter of 2013, which contributed to a slight decrease in the overall vacancy rate to 21% at the mid-year point from 21.4% the previous quarter. Average asking rents also responded to the slowly improving market conditions, increasing to $22.58 per square foot (psf) – the largest upturn since the first quarter of 2011.
Northern New Jersey
Avison Young reports that 22.5% of office inventory in northern New Jersey remained vacant at the close of the second quarter, compared with 22.2% during the previous quarter and 21.2% a year ago. The negative absorption allowed for little fluctuation on average asking rents, which increased slightly to $22.88 psf from $22.84 psf at the end of the first quarter.
Despite Spectra Laboratories’ decision to renew and expand its footprint in Bergen County, and two additional tenants signing leases for approximately 100,000 sf in Morris County, the vacancy rate in Northern New Jersey continues to rise as corporate consolidations bring large blocks of inventory to the market, offsetting leasing activity.
The two aforementioned large leases in Morris County followed the theme of recent activity by life sciences and health services firms. In Madison, Pfizer took 113,000 sf at 1 Giralda Farms, the former Schering Plough headquarters. This is the second large lease signed along the Route 24 Corridor for Pfizer, coming on the heels of the firm’s animal-health group spinoff Zoetis’ 98,000-sf move to Florham Park the previous quarter.
Avison Young notes that when either retrofitting an older complex or improving an existing facility is not an option,companies are seeking build-to-suit opportunities. Summit Medical Group is expected to move into a newly constructed, four-story, 100,000-sf medical office building at The Green at Florham Park, developed by the Rockefeller Group. Construction is planned to begin this September with completion and occupancy slated for early 2015. Summit Medical Group will join BASF, which moved its North American headquarters to The Green in 2012.
Central New Jersey
Avison Young research indicates that the central New Jersey office market is improving, posting its lowest level of vacancy since the fourth quarter of 2008. The overall vacancy rate of 18.7% is down significantly from last quarter’s 20.3%. Following suit are asking rents, averaging $22.02 psf in the second quarter – an increase from last quarter’s $21.75 psf.
Central New Jersey continues to benefit from the conversion of large office facilities formerly developed for and occupied by a single corporate tenant. Memorial Sloan-Kettering’s acquisition was one of two vacant properties taken off the market during the quarter to be repurposed for higher and better use. In Cranbury, an office building formerly developed for Continental Insurance and most recently occupied by Aetna will now be repurposed. Lam Cloud Management LLC signed a 25-year net lease at One Farr View Drive in Cranbury and will convert the building into a collaborative center for technological innovation. The 500,000-sf property had been completely vacant for more than seven years.
In addition to Memorial Sloan-Kettering, recent leases in the life sciences, healthcare and related industries include Amneal Pharmaceuticals, which leased 143,000 sf vacated by Aventis in Bridgewater, though only 43,000 sf was office space; as well as Bausch and Lomb, which subleased 90,000 sf of space formerly occupied by CitiGroup in Warren.
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 1,200 real estate professionals in 48 offices, providingvalue-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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