NORTHEAST SNAPSHOT, DECEMBER 2006

Northern New Jersey Office Market

During, the past 10 years, the northern New Jersey office market has seen very little new construction of office inventory; in turn, narrowing the supply of available space. This trend, coupled with consistent leasing activity throughout northern New Jersey this year, has consequently caused inventory and space to diminish overall. This has been especially apparent in Class A office buildings, which have been experiencing a higher rate of absorption in all of the submarkets throughout northern New Jersey. As a result, more and more owners are upgrading their facilities to meet this qualitative demand by users in the market.

Despite the overall lack of new office development, there are certain submarkets which are experiencing speculative development and the refurbishment of older buildings into higher-class office space. The Princeton and Morris County markets in particular have been the beneficiaries of this development activity, with five developments in those areas nearing completion. Reckson Associates is developing Reckson University Square, a 313,000-square-foot Class A office building in Princeton. This five-story building, located on the corner of U.S. Highway 1 and Alexander Road, will contain a dining facility, a teleconferencing/board room, a fitness center and a two-story atrium. Construction is scheduled to be completed by year end.

Also in Princeton, the Patrinely Group has recently constructed 1100 Campus Road, a 167,000-square-foot, Class A office building. The building is part of a five-building office park and is available in its entirety. Hilton Realty Company is also constructing 902 Carnegie Center, a 140,000-square- foot Class A office building located at 902 Carnegie Center West in Princeton. Amenities will include a café, a fitness center and a full basement for tenant storage. Completion is scheduled for first quarter 2007. In addition, Brandywine Realty Trust has recently broken ground on the latest addition to its Princeton Pike Corporate Center, a three-story, 75,000-square-foot Class A office building in Lawrenceville.

In Morris County, The Gale Company, in partnership with J.P. Morgan, is developing the third building at The Center of Morris County, a 175,000-square-foot, Class A office building located at 100 Kimball Drive. Construction is scheduled to be completed by year end. It is rumored that there is significant user looking to lease a majority of building. In addition, The Advance Company is completely refurbishing its' Advance at Southgate, or 445 South Street in Morristown, a 320,000-square-foot building, with a new façade, window and a modern HVAC system.

In northern New Jersey, the office market has traditionally followed the intersections of the major highways, with the epicenter for corporate destinations remaining Morris County. Also, but to a lesser degree, the 78 Corridor is still a destination for interested users. Higher end corporate type users mainly reside throughout Bergen County, in the Montvale and the Woodcliff Lake areas. Financial services and pharmaceutical companies have been the most active tenants in the overall marketplace. Recent noteworthy transactions have included the sanofi-aventis lease of 600,000 square feet of space in Bridgewater Township and the CitiGroup commitment for a like-kind amount in Warren. Also, Realogy and Travel Lodge have been very active in absorbing space throughout Morris County as a result of the break up of the Cendant Corp. In addition, law firms and insurance companies have been active. The current range for Class A rental rates in northern New Jersey have been from the high $20s to the low $30s.

Due to New Jersey’s low unemployment rate, the competitive job market and the rising cost of living, many New Jersey-based companies are concerned about retaining this labor force. Therefore, many firms are often making real estate decisions oriented toward satisfying their labor force. Typically, New Jersey-based companies are choosing locations and buildings that are easily accessible, offer shorter commutes and have amenities that include modern systems, a cafeteria, exercise facilities, nearby retail and day care centers. The larger multinational firms also make decisions based on the needs and the ability to attract and retain their human resources. However, their decisions are generally strategic and are oriented to satisfying their core business and objectives. No longer is it solely imperative to be situated within close proximity to clients, today, multinational firms are making location decisions based on occupancy and labor costs. 

Looking towards the future, the northern New Jersey market, unless the business climate becomes more economically attractive, could be at a disadvantage when compared to other markets in the country. On a positive note, New Jersey has always benefited from the New York City economy. With rental rates in Manhattan continuing to rise and supply of modern and quality space diminishing, companies will begin to see the advantages of the northern New Jersey office market. Because of its close proximity to New York City, New Jersey should experience significant leasing activity through the end of this year and 2007.

— J.C. Giordano is a principal at the Staubach Company’s New Jersey office.

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