C&W: New Jersey office market remains resilient

Real Estate Weekly,  Oct 17, 2007  

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According to Cushman & Wakefield, Inc., the Northern and Central New Jersey office and industrial markets during the third quarter of 2007 fared well amid a climate of concern.

The office markets showed resiliency in the face of a national decline in job growth and economic volatility spurred by a credit crunch and housing slump.

And, despite a slight cool-down in industrial tenant movement and investor activity during the summer months, the New Jersey marketplace remains a favored destination for warehousing and distribution operations.

"During the past three months, Northern New Jersey's overall office vacancy rate declined slightly to 15.4 percent, down from 17.0% from one year ago," noted Gualberto "Gil" Medina, executive managing director of Cushman & Wakefield's New Jersey operations.

"At the same time, average rental rates continue to hover at $27 per square foot, reflecting little change despite attempts by landlords to attract a growing number of tenants with incentive package offers."

Driven by brisk tenant movement within Parsippany, nearly 1.5 million square feet of office leasing activity occurred in the northern counties during the third quarter. Highlighting activity, IMS Health, Inc. leased the long vacant, 120,000 s/f 11 Waterview Blvd for its regional office and will relocate from Totowa. Daiichi Sankyo expanded its U.S. headquarters by 96,876 s/f to completely occupy the 186,020 s/f 2 Hilton Court and also took another 32,121 s/f at 9 Entin Road. The RBA Group relocated from Morristown and leased 35,696 s/f at 7 Campus Drive. "Financial services tenants continued their migration from Manhattan to the Hudson Waterfront, where the overall office vacancy rate dipped below the 10.0% threshold for the first time since 2002," Medina said.

Deutsche Bank expanded by 81,000 s/f at Harborside Financial Center II, and B2X Corporation took 36,000 s/f at 10 Exchange Place.

On the construction front, Gale Construction Company recently broke ground on One Jefferson Road, a 100,000 s/f speculative office building within the Center of Morris County business campus in Parsippany. In Englewood Cliffs, Unilever Besffoods pre-leased 60,000 s/f to become the first tenant within the 125,000 s/f Sylvan Corporate Center complex. Additionally, development is almost completed at the 66,000 s/f Country Club Plaza in Paramus, which remains fully available.

In Central New Jersey, overall office vacancy rates edged down to 17.9%, as compared to 18.6% last year at this time, and average rental rates increased slightly to $25.18 per square foot. Leasing activity in the central counties escalated during the normally slow summer months.

Cosmetics firm L'Oreal, signed a 187,000 s/f, build-to-suit lease within the Connell Corporate Center in Berkeley Heights. Advanced Health Media, Inc. continued its expansion within New Jersey, subleasing 88,594 s/f from sanofi-aventis at 300 Somerset Corporate Blvd. in Bridgewater. Renewals in excess of 100,000 s/f were executed by Motorola in South Plainfield and Commvault Systems in Oceanport.

"Despite the addition of 270,000 s/f at the former Englehard Corp. headquarters at 101 Wood Avenue South in Iselin, high-end space remains scarce in the MetroPark submarket," Medina said. "Increasing activity within the I-78 Corridor and the gradual absorption of excess space vacated by telecommunications firms along the I-287 Corridor also are positive signs for the region."

At the same time, Medina noted that large pockets of available space remain within the Somerset Corporate Center in Bridgewater, Corporate Park 287 in Piscataway and the Atrium Corporate Park in Franklin Township. Additionally, large vacancies still lingering from AT&T (444,760 square feet in Franklin Township) and Lucent (365,000 square feet in Warren Township) have kept sublease space plentiful in Somerset County.

Central New Jersey saw two new office buildings completed during the third quarter: the 100,000 s/f 1249 South River Road in Cranbury and the 140,000 s/f 902 Carnegie Center in West Windsor. Completion of the 280,000 s/f, two-building Princeton South Corporate Center in Ewing Township is expected within the next few months. Each building is partially leased.

"Looking ahead, the slow lease-up and absorption of new construction within the Princeton region may limit the ground breaking of further speculative projects," Medina noted. "Four recently completed properties totaling nearly 700,000 square feet have a collective vacancy rate of 92.0 percent."

Overall available industrial product, currently totaling 46.1 million square feet in Northern and Central New Jersey, declined slightly during the third quarter. Direct average rental rates increased slightly to $6.56 per square foot, up from $6.44 per square foot at this time last year.

"Although the velocity of leasing activity slowed from totals recorded during the first half of 2007, tenants signed more than 5.2 million square feet of leases during the summer," Medina said. "The majority of demand was yet again concentrated in Middlesex County, which housed 43% of the activity."