ELMWOOD PARK, NJ-It’s finally coming back, at least a bit. Spearheaded by large lease signings, Northern New Jersey’s office market will post positive net absorption this year for the first time since 2008, reports Marcus & Millichap Third Quarter Market report.
The main reason: jobs. Employment is slowly returning to the market, with office payrolls increasing by 26,400 jobs year to date, vs. a loss of 24,600 in the second half of 2010. However, the recovery is modest, and the state still has a long way to go, says Michael Fasano, regional manager.
“There was a time when people were contracting,” Fasano says in an exclusive interview with GlobeSt.com. Now, however, companies are considering growth in the not-too-distant future and are planning their real estate needs accordingly.
Statewide vacancy actually rose 30 basis points to 19.7%, but asking rents inched up 0.2% to $25.63 per square foot. Effective rents rose 0.2% to $21.07 per square foot, the report says.
The northern section of the state clearly is well ahead of the rest of the state, with the Hudson waterfront area seeing an influx of companies relocating from New York City in search of more affordable rents. With Jersey City rates 25% lower than across the river, the area boasts the best vacancy rate in the state, at just 8.7%.
Another reason is that companies are beginning to plan for the future, while landlords have become more realistic as to the rents they will accept. “Landlords are doing what needs to be done, and people are making decisions as to what to do,” Fasano says.
Northern New Jersey also will see the most transactions given its proximity to New York and Westchester. In fact, local investors even are looking at discounted class B and class C assets, taking advantage of prices that have dropped more than 10% in the last year, the report says. “Investors are active and engaged,” Fasano says. “We’re in a better position than other markets.”
Southern New Jersey also should begin to see activity pick up, spurred by solid increases in the education and health services sector, the report says.
Central New Jersey, on the other hand, remains problematic, with closures totaling 700,000 square feet and the addition of approximately 590,000 square feet of new space in the last four quarters boosting vacancy to 23%. “There are still issues in Central New Jersey, and still issues the farther west you go,” says Fasano,
Relocations are not the major reason for Central New Jersey’s continued weakness, though some consolidation did occur. “If you’re in Piscataway, you’re in Central New Jersey for a reason,” Fasano says. “You’re not relocating to Bergen County just because.”
The key to any office recovery is jobs, Fasano says. While New Jersey’s unemployment rate is below the national average, “there’s a long road to hoe,” he says. “Companies have become very efficient with their resources, but to have sustainable growth, they have to add jobs,” he says. “We have a long way to go.”