NORTHEAST SNAPSHOT, JUNE 2005
New Jersey Office Market
The office market throughout New Jersey is experiencing a strong year in leasing activity thus far in 2005. The state is flush with activity, including an interesting trend involving Class A office tenants. “The high-end, top-quality buildings are being leased. We are not seeing the flight to quality experienced in the early and mid-1990s — when tenants upgraded from B and C buildings to an A product — rather the leases for larger requirements are tenants and corporations relocating from one Class A product to another,” says Rick Heilmann, vice president of Chatham, N.J.-based The Garibaldi Group/CORFAC International. There is also currently an increase in regional relocations from submarket to submarket.
Heilmann notes that these Class A tenants desire the best in full-service, full-amenity buildings, driving up the level of quality in many Class A office developments. “Tenants are occupying office space at a higher density per square foot than ever before,” he says. “This high-density occupancy can sometimes create uncomfortable work environments.” To offset their employees’ potential discomfort, companies seek buildings with superior HVAC, abundant electric supply, telecommunications, security and food service.
Developers are working throughout New Jersey to supply companies with the buildings they desire. There are potentially significant developments in Princeton, Florham Park, Montvale and Metro Park in the Iselin/Edison area. Though development activity is substantial, Heilmann is not sure that any developer is going to commit to constructing an office building of more than 200,000 square feet. Developers at the forefront of this current increase in activity include Normandy Partners, Allegiance Capital, Preferred Real Estate Investments, TIAA-CREF and KBS.
Right now, a majority of the office development is taking place in Mercer County. “This particular county is experiencing speculative development driven by expanding law firms and pharmaceutical and bio-tech companies,” says Heilmann. “There is approximately 300,000 square feet of new construction underway in the greater Princeton (Mercer County) area, and I think there will be quite a bit of new development to come in the next year.”
He also notes that many eyes are fixed on the up-and-coming transit villages underway in well-positioned communities such as Cranford. These projects are springing up around train stations that feed into New York City and Philadelphia, among other large metropolitan areas. At this point, most of the development in the transit villages is residential and retail, but that may change in the near future.
A number of noteworthy office transactions have been completed this year, including Verizon’s acquisition of an approximately 1.3 million-square-foot building at 295 N. Maple Avenue in Basking Ridge and MetLife’s purchase of 413,000 square feet on Davidson Avenue in Franklin Township. Vonage secured the largest lease to date, signing for 350,000 square feet at 23 Main Street, a building just purchased by Mack-Cali Corporation for $23.75 million. Morgan Stanley has renewed its 300,000-square-foot lease at Harborside in Jersey City and Philips Van Heusen renewed its lease for 164,000 square feet of space on Frontier Road in Bridgewater. Reckson Associates, owner of Giralda Farms, and Mack-Cali have been very aggressive in their acquisitions during the last 6 months
Class A office space rents currently range from $24 per square foot to $36 per square foot. The top-end buildings, properties such as Carnegie Center in Princeton and Giralda Farms in Madison, along with space in the cities of Short Hills, Jersey City, Florham Park and Saddle Brook, are demanding rents above $30.
According to Heilmann, the vacancy rate is approximately 17 percent, but with some leases currently in play, that rate is expected to decrease by the third quarter.
He also has a few ideas on which markets may soon experience an uptick in interest from both developers and potential tenants. “I like markets along the New Jersey Turnpike. Many people will think I’m off base by this; however, the New Jersey Turnpike is the only super highway where traffic actually moves. From Interstates 78, 80, 287 to Route 24 and the Garden State Parkway — all of these roads crawl. The turnpike to the north of Exit 8A moves. I believe landlords and developers with office product along the turnpike will benefit.”
Another area to watch will be the Parsippany market during the next quarter. Even with all its traffic headaches, companies still like Parsippany.
Heilmann believes 2005 will be a good year in the office market. “The Garibaldi Group is already ahead 10 percent in closed transactions for the first three months of 2005 over 2004. Most real estate providers and service companies will state that business is good.”
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