Demand for New Jersey’s Transit Hubs Expected to Remain Strong
Class A buildings in proximity to NJ Transit train stations remained on the radar screen for office occupiers with space requirements. More than 95.0% of the leases completed during the first half of 2019 were concentrated in Class A buildings.
EAST RUTHERFORD, NJ—While lease deals of more than 100,000 square feet has been elusive in New Jersey’s transit hub markets, small to medium-sized lease deals have cut into vacancies in these markets that feature mass transit access.
Brokerage firm JLL in an in-depth report on the transit hub markets “Keeping on Track” states that despite decelerating leasing volume in the Northern and Central New Jersey office market, the overall vacancy rate in the state’s transit hub markets declined 50 basis points from year-end 2018 to 20.0% mid-2019, as tenants continue to flock to space in buildings with access to mass transportation.
Report author Stephen Jenco, VP, director, suburban tri-state office research, JLL, says the lower transit hub vacancy rate was fueled by more than 790,000 square feet of positive net absorption. Most of that absorption was attributed to activity in the Newark market, where 110 Edison Place – Ironside Newark was completed and added to the office inventory base. Mars Wrigley Confectionery US occupies nearly 40% of the 402,530-square-foot building for its U.S. headquarters. Among the largest transactions recently completed in the Newark submarket was the General Services Administration’s leasing of 76,290 square feet at 3 Gateway Center.
The JLL report broke down key markets as either Urban Transit or Suburban Transit Hubs. Urban Transit Hubs consist of major CBD office markets with rail stations: Hoboken/Jersey City, Newark, New Brunswick and Trenton. Suburban Transit Hubs typically contain smaller sized buildings in a wider area and include Metropark, Morristown, Princeton and Summit.
“Against the backdrop of decelerating leasing volume that penned the storyline of the Northern and Central New Jersey office market since 2017, the state’s transit hub market vacancy rate slipped lower during the first half of 2019. With transactions greater than 100,000 square feet being elusive, deals less than 25,000 square feet in size were responsible for most of the current demand seen in the transit markets. Despite today’s leasing environment, the state’s transit hub markets are expected to remain on track as tenants migrate towards buildings with access to mass transportation for their workforces and clients.
However, Jenco says Suburban Urban Transit Hubs should not be counted out as prime markets for tenants. “Whether located in transit hubs or suburban markets, high-end Class A space remains on the corporate wish list. This demand had pulled the Northern and Central New Jersey Class A vacancy rate to its lowest level in more than seven years,” Jenco notes. “However, the relatively empty speculative construction pipeline will challenge tenants seeking modern work environments for their operations. As a result, savvy landlords in suburban and transit hub markets alike are upgrading their buildings and packing them with the amenities to help make their product stand above the competition.”
Other key findings from the “Keeping on Track” report include:
• Class A buildings in proximity to NJ Transit train stations remained on the radar screen for office occupiers with space requirements. More than 95.0% of the leases completed during the first half of 2019 were concentrated in Class A buildings. The transit hub market Class A vacancy rate declined from nearly 19.0% in 2018 to 18.3%. This was in contrast to the state’s suburban office market’s Class A vacancy rate, which was above 26.0% in mid-2019.
• The Hoboken/Jersey City average asking Class A rental rate of $45.60-per-square-foot represented the highest rent among the state’s transit hub markets. With an average asking Class A rental rate of approximately $34.50-per-square-foot, Newark is a potential alternative for companies looking for urban space with access to Manhattan. Class A buildings near the Metropark Train Station increased nearly 1% from year-end 2018 to $34.75-per-square-foot six months later, which was the highest rental rate among suburban transit hub markets.
• With the only new office construction underway in the state’s transit hub markets consisting of 100,700 square feet within a mixed-use project at 1000 Maxwell Lane in Hoboken, limited modern space availabilities combined with persistent demand are expected to maintain upward pressures on Class A rental rates.
• Looking ahead, the Garden State’s transit hubs are expected to remain active as office occupiers spanning a variety of business sectors pursue space options in proximity to walkable amenities and with access to mass-transit options for their employees. There were approximately 2.6 million square feet of office requirements navigating these markets in mid-2019 compared to 2.1 million square feet one year ago.