Since the beginning of 2010, the Northern New Jersey office market has seen a significant increase in activity specifically relating to tenants seeking large units of space. Tenants in the market are looking to make a longer-term commitment or move as opposed to the short-term 1- to 2-year renewals seen back in 2008 and 2009.

While overall demand for office space has been stagnant or increased slightly over the past year, select submarkets have seen a significant increase in demand. These markets include the Upper and Lower I-287 corridor in Bergen and Somerset counties respectively, Eastern Morris County and the Jersey City Waterfront. While other markets have seen little change in demand, the outlook is bright as many tenants will be looking to hire new employees as the economy continues to recover over the next 2 years.

As a whole, Northern New Jersey office vacancy rates fluctuated over the four quarters of 2010 but have remained steady and ended the year at 13.7 percent. Market volatility has decreased significantly since 2009.

Given an increase in market activity and absorption, the overall trend is that landlords are beginning to increase rental rates slightly and pull back on concessions including free rent and fit out allowances. Current rental rates for the Northern New Jersey office market for Class A space average $26.85 per square foot; Class B rates average $21.54; and Class C rates average. $19.72. The weighted market average is $23.88.

As for property sales, the recent sale of the 1.35 million-square-foot Alcatel Lucent campus located at 67 Whippany Road in Whippany will have a significant impact on the Eastern Morris County office market. The new owners, a joint venture between Rubenstein and Vision Equities, plan to redevelop the site for multi-tenant use. This site traded for $18.5 million or $14 per rentable square foot. Another notable transaction includes the sale of the 208,911-square-foot 100 Tice Boulevard in Woodcliff Lake for $67.6 million or $328.58 per square foot. The seller was Advance Realty Group and the buyer was CBRE Realty Trust.

New office developments include the 45,765-square-foot Claremont Corporate Center at 535 Springfield Avenue in Summit, which opened in January, and the 325,000-square-foot build-to-suit for BASF North American Headquarters located at the Greene in Florham Park. Rockefeller Group, the developer and owner of the BASF building, will complete the property in 2012.

As we all know, the real estate industry is a lagging indicator of the economic cycle. Since the stock market has returned to pre-2008 crash levels, real estate professionals are beginning to see light at the end of the tunnel. Many attribute this to the fact that large corporations have increased their profitability by significantly cutting their workforces and achieving equal or greater results. While we are on the bottom of the cycle with economic fundamentals improving, the Northern New Jersey office market will not thrive until companies start hiring in greater numbers.

Considering current trends and activity in the Northern New Jersey office market, we expect modest increases in absorption and activity. Significant changes to the market will come when companies begin to feel comfortable in the environment in which they are operating as it relates to their tax base as well as healthcare costs. Once companies feel that comfort, they will begin hiring and generate demand to occupy more space.

For market conditions to get better, the state needs to be more aggressive in attracting businesses and providing tax incentives while decreasing the tax burden on homeowners. Once that is achieved and companies make the move to the Garden State, the office market will greatly improve.

— Kevin Kollar, associate vice president with Chatham, New Jersey-based The Garibaldi Group/CORFAC International

©2010 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.

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