NORTHEAST SNAPSHOT, NOVEMBER 2005
Southern New Jersey Office Market
Office product in the Southern New Jersey market has remained strong over the past 5 years, as the region has experienced annual absorption of approximately 400,000 square feet to 1.2 million square feet aggregate leasing activity over this time. Due to the fact that this trend has continued for so long, the market should retain its strength. Overall vacancy at mid-year 2005 stood at 8.89 percent, which is down from 10.75 percent at year-end 2004. The drop primarily is due to new absorption and office buildings that were reclassified or sold to users. The vacancy rate for Class A properties also dropped to 4.64 percent. Sublease space has increased to 259,791 square feet, and if this space is factored into the overall vacancy rate, the number stands at 10.35 percent.
In general, REITs have been experiencing challenges in the acquisition of office properties; thus, these companies have shifted to development mode. Moving forward, this trend is likely to sustain.
A majority of new development is occurring in Burlington County, more specifically in the Mount Laurel and Marlton areas. A couple of key elements are supporting the development trends in these submarkets, effectively making them areas ripe for construction. First and foremost, the amount of strategically located available land is a relatively scarce commodity in other parts of the Southern New Jersey market, and that availability exists here. Second, the area benefits from great accessibility near Interstate 295 and the New Jersey Turnpike. Additionally, Burlington County is attractive to residents, boasting a solid school system and affordable housing, so developers actively want to build where people want to live. For a list of major developments currently underway in the Southern New Jersey office market, please see the chart below.
Opus East LLC, the eastern regional operating arm of the Opus Group, recently established a significant presence in the Southern New Jersey office market. Opus East develops retail, multifamily, industrial and office product nationally, and it specifically has turned its attention to the New Jersey office market; currently, Opus is constructing two 87,000-square-foot office projects at the Lake Center Executive Park in Marlton.
Several leases have been signed across the market and are summarized in the chart “Major Leases in the Southern New Jersey Market.”
The Mount Laurel submarket will experience significant development growth that should sustain for the near future. For example, the Bishops Gate Office Park likely will see 800,000 square feet of new development and growth over the next 10 years. In addition, this area benefits from the availability of pre-approved land and excellent access to I-295 and the Turnpike.
In the second half of 2005, the office market appears that it will remain consistent with the first 6 months, as far as trends go. The backlog for prospects seeking office space is strong, and numerous block users are investigating the market. Effective rental rates are stable and are seeing $0.25 per square foot to $0.50 per square foot bumps in 5-year leases.
— Joe Sklencar Sr. is a senior vice president in the Marlton, New Jersey, office of Grubb & Ellis Company
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