PARSIPPANY, NJ—With an improving economy both locally and nationally, the New Jersey office market has been strengthening, helped by state tax incentives and strong demand for available space, according to new research from Colliers International.

Meanwhile, Colliers says the Northern and Central New Jersey industrial markets continued positive movement in the third quarter of 2014 even as new space continues to come online and second generation space is returned to the market.

“Leasing and sales activity in Northern and Central New Jersey both showed strong and improving signs in the third quarter, with the Grow New Jersey State incentives program continuing to have a positive overall impact on the market,” says Robert R. Martie, executive vice president, NJ region, for Colliers International. “However, new space continues to become available, offsetting any considerable reduction in availability. Yet the economy is still improving and business confidence is on the rise. If several large transactions in the pipeline close this year, then we are cautiously optimistic heading into 2015.”

In an exclusive interview with GlobeSt.com, John Obeid, Colliers senior director of research, says Grow New Jersey tax incentives have driven significant office space commitments by major financial services firms. You can listen to extended excerpts from the interview in the audio player below.

“It's a good demand driver for the state,” says Obeid. “We've seen it a lot in the waterfront. It's pulled a lot of tenants into New Jersey from New York. There's really a net benefit to the state in terms of jobs.”

The third quarter of 2014 also saw four leases close in excess of 100,000 square feet, compared to three in the first and second quarters combined. In addition, the Grow New Jersey State incentives program continued to be a major demand driver for large office users. Of the top 10 leases closed in the third quarter, seven received state incentives.

The largest transactions of the quarter receiving state incentives included two financial services firms moving to Jersey City. The largest, JP Morgan Chase leased 226,249 square feet at 480 Washington Boulevard (with $224.8 million in state incentives) and RBC Capital Markets leased 193,067 square feet at 30 Hudson Street (with $78.8 million in State incentives). Also, United Water leased 116,360 square feet at 461 From Road in Paramus (with $5.5 million in State incentives); and TRAC Intermodal leased 82,283 square feet at 750 College Road East in Princeton (with $9.8 million in State incentives).

And in the largest transaction of the quarter (and year-to-date), John Wiley & Sons signed a long-term 383,128-square-foot lease extension at 111 River Street in Hoboken. This lease, coupled with all the relocation activity, resulted in Northern New Jersey's net absorption turning positive in the third quarter, at 670,233 sf, up from negative 284,472 sf in the previous quarter.

Companies are looking more closely at Morristown, Jersey City, Hoboken, and other urban centers, says Obeid.

“We're seeing a lot of those community centers pop up where there's mixed use, multifamily, office, and retail,” he says.

And while large blocks of space are expected to hit the Northern and Central New Jersey markets in the coming months, several notable transactions in the pipeline are expected to close before the end of the year.

At three million square feet, leasing activity in the third quarter of 2014 remained on par with last quarter's activity. Northern New Jersey led the way with more than 2.0 million square feet leased. The overall availability rate in Northern and Central New Jersey at the end of the third quarter was 19.5%, down slightly from 19.7% in the second quarter, and 19.6% the year prior.

The overall average asking rent for Northern and Central New Jersey was $24.05/sf at the end of the third quarter, just a tick below the $24.07/sf in the second quarter, but up more significantly from $23.63/sf the prior year.

Office Sales on the Rise

Several notable office sale transactions closed in the third quarter, signaling increased investor confidence in core, stabilized and value-add office assets. Among the largest:

Marcus Partners purchased 500 Plaza Drive in Secaucus from Hartz Mountain for $69 million, or $155 per square foot. Marcus is embarking on a $15 million capital improvement program.
American Realty Capital purchased 100 College Road West in Princeton from Ivy Realty for $63.6 million, or $413 psf. The property is occupied in its entirety by Sandoz, which earlier this year signed a 12-year net lease.
American Realty Capital purchased another core asset at 2 Giralda Farms in Madison from Maersk for $53.3 million, or $364 psf. Earlier this year, the property had been net leased to Merck through 2025.

On the industrial side, the Port Authority of New York and New Jersey continues to upgrade various facilities on both sides of the Hudson River, bolstering the local industrial market in the short term, with likely longer-term benefits linked to the widening of the Panama Canal starting in 2015.

The third quarter registered 6.8 million square feet of industrial leasing activity, up 48.9% from 4.5 million square feet in the second quarter, and up 31.4% from 5.1 million square feet the year prior. Despite this strong activity, the overall availability rate for Northern and Central New Jersey remained at 12.2% for the second straight quarter, as nine new properties were delivered this quarter, adding more than 2.1 million square feet of vacant space to the market.

Most of the activity was focused in Central New Jersey, driven by the large number of users seeking new class A facilities typically found in the Turnpike corridor market, while extensions and renewals drove activity in the northern part of the state.

In the largest industrial transaction so far this year in northern and central New Jersey, Veeco renewed its lease at 6801 West Side Avenue in Secaucus, occupying the entire 667,882-square-foot building. Other notable third quarter industrial leases included Wakefern's 419,500-square-foot renewal at 60 Tower Road in South Brunswick; Promotion in Motion's 324,337-square-foot lease at 1 Heller Park Lane in Somerset; and Occidental Chemical's 310,000-square-foot at 760 Jersey Avenue in New Brunswick.

Construction activity remained strong in the third quarter, with 13 properties underway totaling in excess of 4 million square feet, 3.3 million square feet of which is being built on spec, all in Central New Jersey. While this level of activity may raise concerns over vacancy in the coming quarters, two major space users have already signed leases in these under-construction properties: Dawn Foods leased 130,681 square feet at 30 Knox Drive in Piscataway, and Amazon leased 391,650 square feet at 275 Omar Avenue in Avenel.

The third quarter also saw an increase in second generation space hitting the market as users moved into new facilities. New third quarter availabilities include: 345,880 square feet at the former Farmland Dairy site at 520 Main Avenue in Wallington; 167,032 square feet at 20 Tower Road in South Brunswick after Preferred Freezer announced its 190,000-square-foot build-to-suit at 275 Blair Road in Woodbridge; and 124,933 sf at 1 Colony Road in Jersey City after Fergusen Supply announced that it will be moving into the newly redeveloped former Panasonic site in Secaucus.

The industrial sales market had another robust quarter in northern and central New Jersey, with $247 million in total activity. In the largest industrial property this quarter, Pure Industrial Real Estate Trust purchased Scannell Properties' FedEx Portfolio at 5 Commerce Drive in Barrington and 1 Commerce Center Drive in Dover for $67.8 million, or $184.16 per square foot.

With land for industrial development being scarce, coupled with heavy investment activity in the Class A industrial market, many investors need to look to Class B product with the intention of rehabbing those properties.

“Overall sale prices in New Jersey for industrial product are keeping up,” says Obeid. “We've seen a lot of class A trade in the past, now we're a lot of class B product trade with the intention of these owners, investors, developers sprucing up the properties to make them more attractive to today's investors.”

Instant Insights /

Colliers Q3 Research: Economy, State Incentives Drive NJ Office Market, Location Driver for Industrials

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