On-Site Amenities Expected as NJ Office Rents Hit Pre-Recession Levels

New Jersey office rent trends, compiled by Transwestern

PARSIPPANY, NJ—With New Jersey’s office market experiencing year-over-year rent increases in 18 of its 21 submarkets, average asking rents have climbed to pre-recession levels, and tenants expect more on-site amenities, according to Transwestern’s Second-Quarter 2016 Office Market Report.

During the second quarter, asking rents exceeded $26 per square foot for the first time since 2008, Transwestern says. This also marked the first time since 2012 that the market experienced four consecutive quarters of rent growth.

In response to the tightening market, landlords are continuing to add significant amenities and conveniences, which are now considered, in many cases, necessities. In particular, mixed-use has become part of the office model in New Jersey, as developers are considering retail, entertainment and grocery options in order to promote foot traffic.

“Landlords continue to upgrade assets to maximize both their return on investment and the tenant experience,” says Matt McDonough, managing director in Transwestern’s New Jersey office. “Upgraded lobbies and amenities remain as the top priorities, but an increasing number of landlords are looking for ways to provide tenants’ employees with the ability to access necessities either on-site or within walking distance. Less time away from the office inspires increased productivity.”

The importance of walkability and convenience is reflected by a number of second-quarter lease commitments in downtown and rail markets, including Bank of America Merrill Lynch in Jersey City; Panasonic, which expanded its footprint in Newark; and the recently merged Hackensack University Health Network and Meridian Health Systems, which leased space in the centrally located, rail-served MetroPark submarket.

The life sciences and health services industries remain most active in New Jersey, with new leases signed by Daiichi Sankyo, Quest Diagnostics, Ogilvy CommonHealth, Aralez Pharmaceuticals and Leo Pharma.

Additional highlights from Transwestern’s market analysis are:

• Tech companies remain active in New Jersey, including new leases signed during the quarter by Avaya, Tangoe and Workwave.
• With the Parsippany, Somerset/Interstate 78 East and Bergen North submarkets experiencing significant quarter-over-quarter rent increases, quarterly rent increased in 16 of 21 submarkets.
• The Hudson Waterfront, Woodbridge/Metro Park, Union/Parkway, Bergen North and Bergen Central submarkets experienced year-over-year rent increases.
• Asking rent in the Hudson Waterfront is nearly $7 higher than a year ago, and, for the first time since 2002, averaged more than $35 per square foot for three consecutive quarters.
• Net absorption was positive for the fourth time in the past five quarters.

“Landlords in markets with high demand are raising asking rents, for the most part by 50 cents to $1 per square foot, but in some cases by as much as $3 per square foot,” says Transwestern’s New Jersey research director Matthew Dolly. “Owners with available capital continue to invest in and modernize facilities to add significant amenities and provide conveniences for tenants, that, for the most part, will pay for those premiums.”