Savills Studley Sees North Jersey Office Peaking

HACKENSACK, NJ—North Jersey office demand began reaching a peak at the end of 2015 and is likely to level off a bit in 2016, according to Savills Studley, which issued its fourth quarter Northern New Jersey office research.

"Leasing rebounded during 2015 as a flight-to-quality supported the flow of businesses to class A product in multiple submarkets," says Gregg Najarian, senior managing director. "Activity is probably approaching its peak, and a return to the slower pace of demand is anticipated in 2016."

Overall availability in the region rose to 25.2 percent, Savills Studley reported. Class A availability in the Hudson Waterfront submarket jumped 1.5 percent to 15.2 percent, but nearby East Bergen declined by 2.4 points to 22.4 percent, the report notes.

"2015 was a strong year for leasing, with a lot of larger deals, but that may have run its course," Keith DeCoster, Savills Studley's US director of real estate analytics, tells Globe St.com exclusively. "Some of the suburban activity was generated by acquisitions and mergers. So it may be a struggle as you move deeper into the year to maintain that leasing volume."

While class A rents rose in desirable high-demand locations like the Hudson Waterfront, that statistic obscures the tax incentives and other landlord-originated concessions being offered to attract companies to those sites, DeCoster says.

"Some of those are the New Jersey job tax credits, but we haven't seen much of a reduction from landlords in terms of concessions," he says. "They are still pretty much elevated, even in a market that's faring pretty well like Jersey City."

Suburban office parks continue to struggle with large vacancies, DeCoster notes.

"Obviously some of these big vacated campuses, like White House station, other locations, are going to be long-term repositioning projects," he says, noting that Somerset Development's efforts to redevelop the massive Bell Laboratories site into Bell Works in Holmdel has moved forward. "Trying to create an urban setting can be a challenge in some of those, but that's what a lot of the developers are trying to do."

Rising rents in outer Boroughs of New York are causing some tenants to look more closely at New Jersey locations, DeCoster says. "You've seen rents in excess of $60 in some of these properties, and in New Jersey, even in Jersey City, once you factor in the incentives, you can get half that for a quality class A building. The cost savings are very significant in New Jersey."

DeCoster's biggest concern for the New Jersey office market is merger activity, which is expected to remain strong in 2016 and could lead to reduced leasing as companies combine and reduce space needs.

"If you look at the tech sector and venture capital funding, some of the investors have gotten tougher recently in terms of how they're assessing the value of startups," he says. "If there's a pullback in investor sentiment, that spells trouble for a lot of markets, including New Jersey."

More-desirable office park locations like Metropark have less available blocks, but for flexible tenants willing to take the road less-travelled, "there's really a wide range of options," DeCoster says.