According to Transwestern's Third-Quarter 2017 Office Market Report, after decades of stagnation, asking rents for office space in New Jersey are steadily rising and nearing an all-time high.
During the past two years, rents have increased by 9 percent - the largest two-year increase since 2001. Furthermore, the market's current average asking rent of $26.86 is the second-highest quarterly average of all time, nearing the high that was recorded more than 16 years ago.
"The concept of 'service' has taken on greater importance over the past couple of years," said James Postell, Transwestern Partner and City Leader. "There's been a significant increase in leasing activity among companies in the service sector industries, and tenants have become much more inclined to renew or relocate to properties based on landlord and management services."
Rents in New Jersey have increased in eight of the past nine quarters, and 16 of the 21 submarkets examined by Transwestern have experienced year-over-year rent increases, including seven submarkets with rents that are more than $1 higher than a year ago. The Hudson Waterfront, Newark/Urban Essex, Short Hills/Millburn and Woodbridge/Metro Park submarkets have experienced the greatest increases.
"The long-running perception of the historically unchanging nature of office rents in New Jersey is no longer salient," said Matthew Dolly, Transwestern's New Jersey Research Director. "As the market has evolved, it seems like every recent office building acquisition in the state is a value-add play where extensive renovations are planned. Significant property upgrades are accompanied by higher asking rents."
The pace of leasing slowed during the third quarter with fewer large transactions completed - no new leases were signed for greater than 100,000 square feet, drawing concerns of consolidation. Among the top 12 largest leases signed during the quarter, 10 were new deals, with leasing strongest among companies in the personal services, legal services, business services and financial services companies.
The State of New Jersey continues to focus on incentives to bolster business growth and retention, as evidenced by three third-quarter deals:
Billtrust, which signed the largest new lease in the Princeton area, considered Bucks County, Pennsylvania, before being awarded Grow NJ Tax credits to create 200 new jobs in Lawrenceville.
Following approval of Grow NJ tax credits based on its plan to create over 150 new jobs, Nuts.com announced it will create a 24,000-square-foot high-tech workspace in Jersey City.
French Pharmaceutical firm Sanofi S.A. was awarded nearly $40 million in tax credits to help reduce occupancy costs at its U.S. headquarters in Bridgewater.
Additional highlights of the report include:
The market's overall average asking rent increased by 44 cents quarter-over-quarter, the largest quarterly increase in rents since fourth quarter 2015.
The Route 280/Suburban Essex submarket led activity in Northern New Jersey and now has the third-lowest vacancy rate of 21 submarkets. The submarket was ranked 15th just one year ago.
The Monmouth East submarket has experienced a vacancy rate improvement of 700 basis points since year-end 2015, becoming one of the strongest submarkets in Central New Jersey.
Somerset/I-78 submarket has struggled of late, as consolidations and move-outs have led to an increase in both available direct and sublet space.