New Jersey Office Market Wired for Recovery with Growth of Tech Sector Employment
MORRISTOWN, NJ –As New Jersey continues to cement its position at the forefront of the nation’s rapidly growing technology sector, the state’s office market is benefitting from the resulting job growth, according to recently released research from Avison Young.
In its third quarter 2013 New Jersey office market analysis, Avison Young cites data from the Bureau of Labor Statistics that show 5.2% growth year-to-date through August in the number of New Jersey companies in search of employees in the computer systems design and related services category.
Reflecting the continued strength of the technology sector, telecommunications giants AT&T and T-Mobile each recently renewed sizable leases in Piscataway and Parsippany, respectively. In addition, Fiserv, which provides technology solutions to the financial world, signed two new leases during the quarter. Television and Internet providers Cablevision and Dish Network also signed new leases during the past three months in Newark and Roseland, respectively, while British Telecom renewed its lease in the very active Metro Park submarket.
“Tech hiring is on the rise in the United States, and New Jersey – which has added 3,600 tech jobs through August this year – is at the forefront of this trend,” comments Jeffrey L. Heller, Avison Young Principal and Managing Director of the firm’s New Jersey office. “As tech and media firms remain active in New York City, we’re anticipating business overflow across the river to vibrant New Jersey urban centers such as Jersey City, Newark and Morristown, where savvy young tech workers of the millennial generation want to live and work.”
For the quarter, New Jersey’s overall availability rate decreased slightly to 20.8% from 21% the previous quarter and from 21.3% year-over-year. Net absorption was positive for two consecutive quarters for the first time since the third quarter of 2011. Another positive during the past two quarters is the overall increase in asking rents. In the third quarter of 2013, rents for available office space averaged $22.75 per square foot (psf) — the highest level since the third quarter of 2012.
Concerns remain that a significant part of the state’s private-sector job growth, while steady, is occurring in sectors that don’t typically fill office space, such as education, health services, and leisure and hospitality.
“It remains an opportune time for tenants to review their current leases and scour the market for alternative and improved options,” notes Matthew Dolly, Avison Young’s Vice-President of Research in New Jersey. “The Economic Opportunity Act of 2013, which consolidates five business incentive programs into two, was put into law this quarter and is expected to focus more on job creation and less on capital improvement. As market leaders and businesses gain a better understanding of these programs in the fourth quarter, we anticipate a burst of lease signings as we head into 2014.”
Northern New Jersey
Following four consecutive quarters of negative net absorption, the office market in northern New Jersey leveled off during the third quarter of 2013. While new mid-sized office leases and expansions occurred in some markets, space was returned in other parts of the region. Concerns remain as several companies plan on disposing of large blocks throughout the region, including Prudential’s inventory in Newark, which will become available as the company consolidates into a new build-to-suit facility in Newark; as well as a portion of Goldman Sachs’ office space along the Jersey City waterfront and Hertz’s headquarters in Park Ridge.
The Parsippany submarket in Morris County improved during the quarter, as the overall vacancy rate dropped to 31.6% from 35.8% the previous quarter. Significant activity included Bayer, which took occupancy of its new, 650,000-square-foot (sf) East Coast headquarters in Whippany at the former Alcatel-Lucent campus, which was acquired in 2012 and redeveloped by Vision Equities andRubenstein Partners.
In addition to T-Mobile’s renewal and new leases by Fiserv and Dish Network, Drinker, Biddle & Reath LLP signed a new lease to relocate its New Jersey offices within Park Avenue at Morris County in Florham Park, occupying nearly 60,000 sf.
Currently, 22.3% of northern New Jersey office inventory remains vacant, compared with 22.5% the previous quarter and 21.7% year-over-year. The average asking rent for office space in northern New Jersey increased for the second consecutive quarter, from $22.88 psf to $23.22 psf – the highest level since the third quarter of 2011.
Central New Jersey
Central New Jersey’s office market stabilized during the quarter as lease renewals dominated activity. The region benefitted from diversity of both industry and location, with each of the top four leases coming from different business sectors: technology/telecommunications, construction, financial services and health services. Submarkets where a minimum of four leases were signed for a total of more than 100,000 sf included Piscataway/Somerset, Princeton South, I-78 East/I-287 Corridor, Monmouth East and Metro Park/Woodbridge.
AT&T signed the largest lease during the quarter, retaining occupancy of 275,000 sf at 30 Knightsbridge Road in Piscataway. In Princeton, engineering and construction firm URS Corporation renewed its lease of 234,160 sf. In Metro Park, Real Estate Mortgage Networks signed a new lease for 50,258 sf. The Metro Park/Woodbridge region has been very healthy, with the vacancy rate declining to 20% from 28% in less than three years, further demonstrating how markets with access to mass transportation are becoming more favorable.
The overall central New Jersey vacancy rate at the end of the quarter was 18.6%, virtually unchanged from 18.7% during the previous quarter, but much improved from 20.5% one year ago. Asking rents experienced an eight-cent reduction from the previous quarter, averaging $21.94 psf. One setback for the central New Jersey market may be the announcement by Bristol-Myers of its planned relocation of 200 jobs from Plainsboro to Tampa, Florida in 2014.
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 1,300 real estate professionals in 53 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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