Jersey flaunts its Class A spaces and affordable rents

Real Estate Weekly,  August 1, 2007  by Stephen Jenco

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The faint light that appeared at the end of the tunnel in the first quarter of 2007 grew brighter as additional office requirements produced nearly 1.2 million square feet of positive net absorption in the Northern and Central New Jersey office market during the second quarter.

This represented the largest volume of positive absorption recorded in a single quarter since the third quarter of 2005, when nearly 1.6 million square feet was absorbed.

Accelerating leasing velocity resulted in nearly 1.5 million square feet being absorbed in the office market during the first half of 2007, compared to a miniscule 443,000 s/f of positive absorption registered in the same timeframe a year ago. The Northern and Central New Jersey overall availability rate has subsequently retreated from more than 20% in early 2007 to 19.5% at mid-year.

A significant portion of the positive absorption witnessed in the office market during the second quarter can be attributed to an uptick in demand occurring in Northern New Jersey, where more than 1.1 million square feet was absorbed. Within the 94 million-square-foot Northern New Jersey market, the Hudson Waterfront, Morristown Area and Parsippany/I-287/ Route 10 submarkets each reported positive absorption figures in excess of 300,000 s/f during the second quarter.

Corporate relocations and expansions by several companies, including Barr Pharmaceuticals, Deloitte & Touche and Novartis, contributed to the positive absorption that occurred in the Northern New Jersey office market.

The Morris County market provided the backdrop for a dramatic surge in positive leasing momentum that led to nearly 724,000 s/f being absorbed during the second quarter.

This represented the largest volume of positive net absorption out of the 11 Northern and Central New Jersey counties.

In response to increased demand, the Morris County overall availability rate declined from more than 26% in early 2007 to 23% at mid-year. Companies occupying space in this market have been taking advantage of Morris County's accessibility from other regions of the state via the major highways and interstates that bisect the county.

Within Morris County, the Parsippany/ 1-287/Route 10 garnered the office spotlight, as more than 385,000 s/f was absorbed during the second quarter. This represented the largest volume of positive absorption in Northern and Central New Jersey. Contributing to this absorption was Deloitte & Touche's decision to relocate and expand into 160,000 s/fat 100 Kimball Drive in Parsippany.

Gale Real Estate Services completed construction on this 175,000 s/f speculative Class A office building earlier this year. The financial advisory firm had formerly occupied 90,000 s/f at 2 Hilton Court. Daiichi Sankyo also leased 46,000 s/f at 7 Campus Drive. On the user sales front, Givaudan Flavors purchased a twobuilding 151,416 s/f office complex at 711-717 Ridgedale Avenue in East Hanover for $21.5 million, or $142 psf. The Parsippany/I-287/Route 10 overall availability rate declined from nearly 23% in the first quarter to less than 19% at mid-year.

Despite recent mergers and consolidations that have resulted in the reshuffling of several major players, New Jersey's pharmaceutical industry remains a leading economic and real estate growth driver for the state.

According to the HealthCare Institute of New Jersey's 2007 Annual Report, pharmaceutical companies employed nearly 62,000 workers in the state, and had an estimated economic impact of more than $26 billion on New Jersey's economy.

Expanding requirements by pharmaceutical companies were a leading theme of the Bergen North submarket in the second quarter.

In Woodcliff Lake, Advance Realty Group completed construction on a 209,000 s/f Class A office building at 100 Tice Boulevard, which will serve as the U.S. headquarters for Eisai. Barr Pharmaceuticals also leased a 144,000 s/f building at 225 Summit Avenue in Montvale. The generic drug firm is relocating its corporate headquarters from nearby Woodcliff Lake. These transactions contributed to the nearly 270,000 s/f of positive absorption that occurred in the Bergen North Class A market.

With surging demand for Manhattan office space pulling down the Midtown and Downtown Class A availability rates to 6.3 and 7.8%, while driving up average asking Class A asking rents to $90 and $59 psf plus tenant electric; respectively, the Northern and Central New Jersey market increasingly becomes a more attractive economic alternative for expanding office users.

In mid 2007, the Northern and Central New Jersey Class A availability rate was above 20%, while the average asking Class A rental rate was less than $28.70 psf plus tenant electric. Only six of the 22 Northern and Central New Jersey office submarkets registered average asking Class A rents above $30 psf plus tenant electric.

The availability of Class A product located across the Hudson River at competitive rental rates continue to be powerful selling points for Manhattan companies seeking additional space to accommodate their expanding operations.