October 25, 2018
FLORHAM PARK, N.J. – Large renewals and expansions within various suburban submarkets led to a slight improvement in vacancy levels and an increase in asking rents last quarter for the New Jersey office market, according to Transwestern’s Third-Quarter 2018 Office Market Report. Following a setback during the first quarter of 2018, the market witnessed back-to-back quarters of positive absorption, while the vacancy rate improved from 15 to 14.9 percent, considerably below its average of 15.7 percent during the past five years.
Nearly two-thirds of the region’s submarkets experienced positive absorption both on a quarterly and year-over-year basis, with Bergen and Morris counties predominant in Northern New Jersey, and Middlesex County setting the pace in Central New Jersey. Also, a number of the state’s largest deals tapped into Grow New Jersey tax incentives.
“Owners are being more creative with their assets and, as a result, we’ve seen several success stories, including Exeter Property Group’s renovation of 700 Route 202/206 in Bridgewater and USI Insurance’s relocation to 180 Park Ave. in Florham Park, which is being modernized by Hudson Advisors,” said James Postell, Partner and City Leader in Transwestern’s New Jersey office. “Some of these suburban office properties are morphing into live-work-play destinations, while other sites are being repurposed to boost their appeal to a millennial workforce.”
Including Insmed’s new lease at 700 Route 202/206, the life sciences sector was responsible for nearly 700,000 square feet of leasing activity during the quarter, including the period’s largest transaction. Capitalizing on $40 million in tax incentives from Grow New Jersey, Israel-based global pharmaceutical firm Teva Pharmaceuticals is situating its American headquarters within an approximately 345,000-square-foot space in Parsippany.
Financial services firms inked approximately 600,000 square feet during the quarter. Among the industry’s largest deals, online stock brokerage E-Trade received $20 million in state incentives to help expand its presence to 132,000 square feet in Jersey City.
“With downtown migration dominating in previous years, suburban population growth has now returned,” said Matthew Dolly, Research Director in Transwestern’s New Jersey office. “This new demographic trend is likely contributing to the recent surge in suburban office market activity. Along with that, the growing adoption of technology by office tenants is allowing for expanded geographic parameters, which also seems to be helping suburban markets.”
The 14.9 percent vacancy level was the lowest since the 14.8 percent rate during the third quarter of last year, which itself represented an eight-year low. The volume of new transactions was strong enough to offset the return of a considerable amount of space to the Jersey City market on the Hudson waterfront.
Market asking rents stabilized higher this quarter to $26.88 per square foot. The slight improvement positioned the overall asking average just short of its all-time high. Rents stood 9 percent higher than their 2011 post-recession low and 5 percent higher than their five-year average.
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