Northern New Jersey Office Market

Throughout the Northern New Jersey office market, gross rental rates for Class A properties have not increased dramatically over the past year; rather, they seem to have stabilized between approximately $25 per square foot and $27 per square foot, and going rents for new construction generally range between $32 per square foot and $34 per square foot. Vacancy rates stand at approximately 17 percent for Class A, B and C office space 30,000 square feet and greater that is currently existing, under construction or in renovation.

Trends in the market suggest that rising interest rates have affected both sides of the development equation. Lenders are tightening underwriting standards, and the majority of development projects now reflect lower LTV ratios and require additional deposit money or mezzanine financing. Lending requirements also stipulate the need for additional capital in order for developers to meet strict debt service coverage ratios. In effect, conservatism from lenders has decreased activity in speculative construction.

In addition to increased lender conservatism, environmental issues and construction costs are other obstacles barring developers from speculative development in the Northern New Jersey office market. However, ultimately the lag in spec construction will allow existing supply to be absorbed, further tightening an improving market and providing an overall positive impact. Currently, the only speculative office project in the market is The Gale Company's development of the 175,000-square-foot 100 Kimball Drive at the Center of Morris County in Parsippany, New Jersey.

Despite lessened activity in speculative office development, Matrix Development Group has proposed a significant mixed-use project, Newark Riverfront Center. The development includes 430,000 square feet of Class A office space, in addition to 500 residential units and retail space. McCarter & English plans to occupy 230,000 square feet of the available office space within the project, which, while leaving a temporary vacancy at the company's current space, allows other tenants to take advantage of the opportunity, and it ensures the retention of this large tenant for the city of Newark. Another anticipated mixed-use urban development taking shape in New Jersey is Advance Realty Group's Harrison MetroCentre. When completed, the redevelopment will consist of 3 million square feet of Class A office space, 500,000 square feet of retail space and approximately 4,000 housing units. A 25,000-seat stadium, which will be the new home of the New York/New Jersey Metro Stars soccer team, also is planned.  

While not many new developers are entering the Northern New Jersey office market, existing players such as Advance Realty Group have been expanding. Normandy Realty Group is a notable exception, having recently penetrated the sector.

A visible trend in the leasing sector of the market has been absorption of small to mid-size space, while only a few large transactions have been executed sporadically. The most significant transaction resulting in large absorption was Verizon Communications' acquisition of the former AT&T headquarters site, a 1.3 million-square-foot space located at 295 North Maple Avenue in Basking Ridge, New Jersey. Other recent notable leases include sanofi-aventis absorbing 670,000 square feet at 55 Corporate Drive in Bridgewater, New Jersey, Celgene Corporation signing on for 415,000 square feet at 86-90 Morris Avenue in Summit, New Jersey, MetLife occupying 460,000 square feet at 300 Davidson Avenue & Somerset Grove 1 in Somerset, New Jersey, AT&T Corporation taking 387,000 square feet at 340 Mount Kemble Avenue, Kemble Plaza, Morristown, New Jersey, and Vonage leasing approximately 350,000 square feet at 23 Main Street in Holmdel, New Jersey.

In the past 18 months, the Route 78/Bridgewater corridor has experienced approximately 2.5 million square feet of new absorption, with the Verizon and sanofi-aventis transactions, along with Citigroup's occupation of 1 million square feet in Warren, New Jersey, taking the bulk of that space. If high absorption continues in this submarket, it will be an interesting area to watch in the near future.

Overall, the Northern New Jersey office market exhibited positive growth in 2005 on numerous levels, culminating with increased momentum in the fourth quarter. The net absorption skyrocketed from a negative 219,369 square feet in the third quarter to a fourth quarter positive absorption of 1.55 million square feet. Throughout all of 2005, the entire market experienced a positive net absorption of close to 4 million square feet; needless to say, this activity points to the likelihood of a prosperous 2006.            

— Jim Sousa is senior vice president of WCB (Weichert Commercial Brokerage) in Morris Plains, New Jersey.

©2006 France Publications, Inc. Duplication or reproduction of this article not permitted without authorization from France Publications, Inc. For information on reprints of this article contact Barbara Sherer at (630) 554-6054.

Search Property Listings

Requirements for
News Sections

Market Highlights and Snapshots

Editorial Calendar

Today's Real Estate News