Andrew Judd, left, and Jason Price, of Cushman & Wakefield

EAST RUTHERFORD, NJ—Large corporate relocations — driven mainly by state incentives and steady yet modest employment gains — propelled Northern and Central New Jersey into one of their best quarters of office leasing in recent history as vacant space tightened markedly in some market segments and particularly for class A space, according to Cushman & Wakefield's latest research.

“At 1.8 million square feet, the third quarter of 2016 boasted the highest amount of square footage absorbed in any one quarter in the Garden State in the past fifteen years,” says Andrew Judd, Cushman & Wakefield's New Jersey market leader. “The last two quarters combined have produced slightly more than 2.8 million square feet of net occupancy gains, as vacancy has fallen by 140 basis points since the first quarter. The demand for quality, class A space throughout the market was evident during the third quarter, as all of the occupancy gains were concentrated within class A product.”

The overall 3Q office vacancy rate (17.4 percent) was at its lowest point since year-end 2007, with Northern and Central New Jersey both having seen declines in available space since the close of 2014. During 3Q, the Meadowlands, Route 10/24 Corridor, Princeton/Route 1 Corridor, Monmouth County, and the Upper 287 submarkets each exceeded 100,000 square feet of net absorption due to robust demand. Of these submarkets, Route 10/24 (-670 basis points), Monmouth County (-360 basis points), Upper 287 Corridor (-310 basis points), and the Meadowlands (-250 basis points) recorded the most substantial improvements for vacancy rates.

One sector of the office market showing surprising vigor has been the redevelopment of stranded asset suburban office parks, Jason Price, Cushman & Wakefield's research director, Tri-State Suburbs, tells GlobeSt.com exclusively.

“The largest example would be the Bell Works complex in Holmdel,” Price says. “After sitting vacant for some time, it began major renovations to turn it into a mixed-use (office, retail, medical, even plans for a hotel). Even before renovations were complete, companies began committing to the new campus in mid-2015. To date, more than 550,000 square feet of leases have been signed, including iCIMS relocating its headquarters to the campus.”

Liberty Corner I (184 Liberty Corner Road in Warren Township) went through a complete gut renovation down to the steel of the building, finished in 2013, Price says. “Since then, GlaxoSmithKline took 144,536 square feet last year while Bellephon Therapeutics (21,845 square feet) and Continental Casualty Company (25,587 square feet) leased space in the second half of last year,” he says. The building is now 88.1 percent occupied.

The Crossings at Jefferson Park in Whippany (115 South Jefferson Road) was once home to Bear Stearns Disaster Recovery Center. “After purchasing the campus in 2012, Vision Equities/Rubenstein partners turned it into a multi-tenant campus with upgrades to the façade, walking paths, new landscaping, and a central amenity center,” says Price. “Some notable tenants have leased space there including PSKW Intermediate, which signed this quarter for 59,561 square feet, and Arthur J Gallagher Risk Management, which took 51,210 square feet last May.”

Meanwhile, says Price, at Mack-Cali's Business Campus in Parsippany, new restaurants, upgraded fitness centers and food services are all in the works. A Wegmans supermarket is also locating there. At Waterview Corporate Center in Parsippany, plans are in the works for a retail center anchored by Whole Foods.

Mallinckrodt Pharma just leased the entire Somerset Financial Center (1405-1425 Route 206) in Bedminster and is investing $80 million to redevelop the campus to fit its needs, Price says.

Meanwhile, class A space tightened, pushing vacancy rates to recent lows in the Meadowlands (13.4 percent), Route 10/24 (21.9 percent), and Princeton/Route 1 (7.5 percent). The vacancy rate would have been even lower if not for the additions of large blocks of space that became available in the Hudson Waterfront and Parsippany markets, as well as Valeant placing a 310,000-square-foot sublease on the market at Somerset Corporate Center in Bridgewater.

Leasing activity for 3Q exceeded 3.1 million square feet, the second highest quarterly total since prior to the recession, trailing only the 3.8 million square feet recorded in Q2 2015. More than 77.0 percent of the Q3 2016 deal volume was concentrated in class A product, as large corporations executed major relocations within the Garden State to upgrade their space, due largely to state incentives. Of the 23 transactions of 25,000 square feet or greater, which were completed during the quarter, 60.8 percent received state incentives, totaling more than $315 million. Of the seven new leases greater than 100,000 square feet, five included tax breaks from the state.

“Northern and Central New Jersey experienced one of its strongest quarters of office leasing since the Great Recession, and is poised to finish 2016 with its highest annual net absorption totals even if the market stalls somewhat during the fourth quarter,” says Judd. “There are a handful of notable leases in the pipeline set to close before year end, which should help offset some large dispositions on the horizon in both Parsippany and Princeton/Route 1. State incentives will continue to drive the larger corporate transactions and we anticipate a continued flight-to-quality, specifically within more up-to-date office buildings, to continue into next year.”

The largest new closed office leases of 3Q 2016 included:

Allergan's 431,495-square feet lease at 5 Giralda Farms in Madison, which will allow the pharmaceutical company to consolidate its space around New Jersey.
As noted, iCIMS took 350,000 square feet at Bell Works in Holmdel and will consolidate its Monmouth County locations to the newly-renovated campus on Crawfords Corner Road.
Mallinckrodt Pharmaceuticals at Somerset Financial Center
Ernst & Young leased 168,156 square feet at Waterfront Corporate Center II in Hoboken.
Horizon Blue Cross Blue Shield completed a 142,029-square feet lease at Princeton Place at Hopewell.

Meanwhile, a handful of large renewals were executed during the quarter by companies such as Mizuho Bank, Deutsche Bank, Qualcomm, and Marsh & McLennan.

There were five submarkets which recorded greater than 250,000 square feet of new leasing activity during the third quarter: Route 10/24 (505,000 square feet), I-78 Corridor (448,000 square feet), Hudson Waterfront (429,000 square feet), Monmouth County (416,000 square feet), and Princeton/Route 1 (283,000 square feet). Meanwhile, both the Meadowlands and Upper 287 Corridor exceeded 145,000 square feet of transaction volume in that time.

The pharmaceutical/life sciences, computer services/information technology, and manufacturing and insurance industries led the way in terms of industry sectors leasing space for the quarter. Year-to-date the market has reached its second highest total for leasing activity since 2009 trailing only last year's aggregate at this time. Since 2016 began, office deals in excess of 100,000 square feet have accounted for 34.7 percent of the recorded leasing volume.

“Asking rents in the more prominent submarkets are projected to ascend further into next year as quality space tightens and the local economy continues on its modest upswing,” said Price. “However, cautious optimism remains due in part to the upcoming election and global economic uncertainties.”

Price also noted that asking rents as a whole ticked higher during 3Q to $26.62 per square foot (per square foot). While some market segments experienced slight declines in their average asking rental rates due to high priced spaces leasing up, thereby removing some higher-priced product from available inventory, some other submarkets recorded increases due to landlords responding to tightening market conditions. class A rents in Northern New Jersey reached $31.78 per square foot at the close of 3Q, a 5.8 percent increase from a year ago. Central New Jersey's class A average dipped slightly by two percent in that time to $27.81 per square foot, due in large part to the aforementioned high-priced space leasing up in areas such as the I-78 Corridor and Princeton/Route 1. The Hudson Waterfront remained the highest priced submarket in the state with class A direct rents averaging $40.53 per square foot.

Cushman & Wakefield: NJ Office Market in Q3 Remains at Record Levels EAST RUTHERFORD, NJ—Large corporate relocations — driven mainly by state incentives and steady yet modest employment gains — propelled Northern and Central New Jersey into one of their best quarters of office leasing in recent history as vacant space tightened markedly in some market segments and particularly for class A space, according to Cushman & Wakefield's latest research. “At 1.8 million square feet, the third quarter of 2016 boasted the highest amount of square footage absorbed in any one quarter in the Garden State in the past fifteen years,” says Andrew Judd, Cushman & Wakefield's New Jersey market leader. “The last two quarters combined have produced slightly more than 2.8 million square feet of net occupancy gains, as vacancy has fallen by 140 basis points since the first quarter. The demand for quality, class A space throughout the market was evident during the third quarter, as all of the occupancy gains were concentrated within class A product.” The overall 3Q office vacancy rate (17.4 percent) was at its lowest point since year-end 2007, with Northern and Central New Jersey both having seen declines in available space since the close of 2014. During 3Q, the Meadowlands, Route 10/24 Corridor, Princeton/Route 1 Corridor, Monmouth County, and the Upper 287 submarkets each exceeded 100,000 square feet of net absorption due to robust demand. Of these submarkets, Route 10/24 (-670 basis points), Monmouth County (-360 basis points), Upper 287 Corridor (-310 basis points), and the Meadowlands (-250 basis points) recorded the most substantial improvements for vacancy rates. One sector of the office market showing surprising vigor has been the redevelopment of stranded asset suburban office parks, Jason Price, Cushman & Wakefield's research director, Tri-State Suburbs, tells GlobeSt.com exclusively. “The largest example would be the Bell Works complex in Holmdel,” Price says. “After sitting vacant for some time, it began major renovations to turn it into a mixed-use (office, retail, medical, even plans for a hotel). Even before renovations were complete, companies began committing to the new campus in mid-2015. To date, more than 550,000 square feet of leases have been signed, including iCIMS relocating its headquarters to the campus.” Liberty Corner I (184 Liberty Corner Road in Warren Township) went through a complete gut renovation down to the steel of the building, finished in 2013, Price says. “Since then, GlaxoSmithKline took 144,536 square feet last year while Bellephon Therapeutics (21,845 square feet) and Continental Casualty Company (25,587 square feet) leased space in the second half of last year,” he says. The building is now 88.1 percent occupied. The Crossings at Jefferson Park in Whippany (115 South Jefferson Road) was once home to Bear Stearns Disaster Recovery Center. “After purchasing the campus in 2012, Vision Equities/Rubenstein partners turned it into a multi-tenant campus with upgrades to the façade, walking paths, new landscaping, and a central amenity center,” says Price. “Some notable tenants have leased space there including PSKW Intermediate, which signed this quarter for 59,561 square feet, and Arthur J Gallagher Risk Management, which took 51,210 square feet last May.” Meanwhile, says Price, at Mack-Cali's Business Campus in Parsippany, new restaurants, upgraded fitness centers and food services are all in the works. A Wegmans supermarket is also locating there. At Waterview Corporate Center in Parsippany, plans are in the works for a retail center anchored by Whole Foods. Mallinckrodt Pharma just leased the entire Somerset Financial Center (1405-1425 Route 206) in Bedminster and is investing $80 million to redevelop the campus to fit its needs, Price says. Meanwhile, class A space tightened, pushing vacancy rates to recent lows in the Meadowlands (13.4 percent), Route 10/24 (21.9 percent), and Princeton/Route 1 (7.5 percent). The vacancy rate would have been even lower if not for the additions of large blocks of space that became available in the Hudson Waterfront and Parsippany markets, as well as Valeant placing a 310,000-square-foot sublease on the market at Somerset Corporate Center in Bridgewater. Leasing activity for 3Q exceeded 3.1 million square feet, the second highest quarterly total since prior to the recession, trailing only the 3.8 million square feet recorded in Q2 2015. More than 77.0 percent of the Q3 2016 deal volume was concentrated in class A product, as large corporations executed major relocations within the Garden State to upgrade their space, due largely to state incentives. Of the 23 transactions of 25,000 square feet or greater, which were completed during the quarter, 60.8 percent received state incentives, totaling more than $315 million. Of the seven new leases greater than 100,000 square feet, five included tax breaks from the state. “Northern and Central New Jersey experienced one of its strongest quarters of office leasing since the Great Recession, and is poised to finish 2016 with its highest annual net absorption totals even if the market stalls somewhat during the fourth quarter,” says Judd. “There are a handful of notable leases in the pipeline set to close before year end, which should help offset some large dispositions on the horizon in both Parsippany and Princeton/Route 1. State incentives will continue to drive the larger corporate transactions and we anticipate a continued flight-to-quality, specifically within more up-to-date office buildings, to continue into next year.” The largest new closed office leases of 3Q 2016 included:

Allergan's 431,495-square feet lease at 5 Giralda Farms in Madison, which will allow the pharmaceutical company to consolidate its space around New Jersey.
As noted, iCIMS took 350,000 square feet at Bell Works in Holmdel and will consolidate its Monmouth County locations to the newly-renovated campus on Crawfords Corner Road.
Mallinckrodt Pharmaceuticals at Somerset Financial Center
Ernst & Young leased 168,156 square feet at Waterfront Corporate Center II in Hoboken.
Horizon Blue Cross Blue Shield completed a 142,029-square feet lease at Princeton Place at Hopewell.

Meanwhile, a handful of large renewals were executed during the quarter by companies such as Mizuho Bank, Deutsche Bank, Qualcomm, and Marsh & McLennan. There were five submarkets which recorded greater than 250,000 square feet of new leasing activity during the third quarter: Route 10/24 (505,000 square feet), I-78 Corridor (448,000 square feet), Hudson Waterfront (429,000 square feet), Monmouth County (416,000 square feet), and Princeton/Route 1 (283,000 square feet). Meanwhile, both the Meadowlands and Upper 287 Corridor exceeded 145,000 square feet of transaction volume in that time.

The largest new closed office leases of 3Q 2016 included:

Allergan's 431,495-square feet lease at 5 Giralda Farms in Madison, which will allow the pharmaceutical company to consolidate its space around New Jersey.
As noted, iCIMS took 350,000 square feet at Bell Works in Holmdel and will consolidate its Monmouth County locations to the newly-renovated campus on Crawfords Corner Road.
Mallinckrodt Pharmaceuticals at Somerset Financial Center
Ernst & Young leased 168,156 square feet at Waterfront Corporate Center II in Hoboken.
Horizon Blue Cross Blue Shield completed a 142,029-square feet lease at Princeton Place at Hopewell.

Meanwhile, a handful of large renewals were executed during the quarter by companies such as Mizuho Bank, Deutsche Bank, Qualcomm, and Marsh & McLennan.

Allergan's 431,495-square feet lease at 5 Giralda Farms in Madison, which will allow the pharmaceutical company to consolidate its space around New Jersey.
As noted, iCIMS took 350,000 square feet at Bell Works in Holmdel and will consolidate its Monmouth County locations to the newly-renovated campus on Crawfords Corner Road.
Mallinckrodt Pharmaceuticals at Somerset Financial Center
Ernst & Young leased 168,156 square feet at Waterfront Corporate Center II in Hoboken.
Horizon Blue Cross Blue Shield completed a 142,029-square feet lease at Princeton Place at Hopewell.

Instant Insights /

Cushman & Wakefield: NJ Office Market in Q3 Remains at Record Levels

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