New Jersey asking rents rose 7 percent in 1998

Real Estate Weekly, Feb 24, 1999

The New Jersey office market performed consistently well over the past 12 months, absorbing millions of square feet of new inventory and maintaining a declining availability rate, according to Newmark Partners, Inc.'s 1998 Year-End Report.

The financial services firms and high-tech companies that moved in during the first six months of the year have been joined by a growing number of pharmaceutical companies and manufacturing firms. As a result, a massive total of 1.78 million square feet was absorbed in the New Jersey market during the last six months of 1998.

"The New Jersey market ended the year on a very strong note," said Seena Stein, president of Newmark Partners. "The fourth quarter was the strongest quarter of the year in Northern New Jersey, as availability dropped by .9 percentage points to 11.7 percent. Central New Jersey's availability rate fell to 12.6 percent, marking a decrease of 2.3 percentage points for the year."

The largest deal of the fourth quarter was signed by Household International, Inc. at 200 Somerset Corporate Boulevard in Bridgewater, NJ. The 110,000 square-foot deal was the only leasing transaction in New Jersey that was over 100,000 square feet in the fourth quarter. Two of the three deals in excess of 50,000 square feet were inked in the third quarter. Baxter International, Inc. (85,000 square feet) and Andersen Consulting (51,436 square feet) signed leases at 41 Spring Street in New Providence, NJ.

One of the more active companies during the second half of 1998 was the high-profile telecommunications firm Lucent Technologies, Inc., which signed a lease for 20,599 square feet at 2139 Route 35 North in Holmdel, and a 26,250 square foot lease at 188 Mount Airy Road in Basking Ridge. Lucent joined AT&T, Bell Atlantic Mobile Systems, Dun & Bradstreet and Electronic Data Systems in this corporate neighborhood, which is rapidly filling up with telecommunications and new media companies.

Class A space did not last long on the open market in New Jersey during the past six months. The 168,284 square-foot Class A office building at 41 Spring Street in New Providence completed renovation in June, and by October the entire building was leased up by such high-profile tenants as Andersen Consulting and Baxter Pharmaceuticals. Similar leasing activity took place at the 425,000 square feet Class A office building at 150 Clove Road in Little Falls, where 167,000 square feet was taken by three tenants. The 125,000 square-foot Class A building at 3 Garret Mountain Plaza was also home to three leasing transactions this year. In spite of this tremendous leasing activity, the combined vacancy rate of these three properties is still an above-average 7.4 percent.

Direct availability of Class A space in New Jersey is 7.1 percent, including buildings that are currently under renovation and proposed buildings that have begun marketing their space. The fact that available blocks of prime space are nowhere to be found has piqued the interest of developers, but it is the rising rents that have investors streaming in. The current weighted average asking rent in New Jersey is $19.51 per square foot across all classes, but for Class A space alone, rents are 14.6 percent higher ($22.36 per square foot), and four submarkets boasted Class A rents above $25 per square foot.

This dramatic tightening in New Jersey office market has resulted in higher rents throughout the area, most notably in the Waterfront submarket, where rents jumped 10.3 percent over the last 12 months, but was supplanted as the most expensive district by Somerset in Central New Jersey. This may not remain the case, as planned Jersey City developments in excess of 1 million square feet will soon be asking Manhattan-sized rents in 1999.

On the whole, Northern New Jersey, backed by six districts with average rental rates in excess of $20 per square foot, remains the more expensive area, and is likely to stay that way.

Once again, Northern New Jersey turned in a more impressive performance than Central, producing 1,348,798 square feet of net absorption and a 1.1 percent decrease in availability during the second half of 1998. As has been the case in every quarter of 1998, the availability rate shrank (down to 11.7 percent from 12.8 percent in June), and direct space accounted for all of it. As in Central New Jersey, sublet space is continuing to come back onto the market in Northern New Jersey, as 378,326 square feet was returned over the last 12 months. The availability rate of 10 percent for direct office space means that product is growing scarce in many submarkets, which should influence decision-makers to proceed with development projects currently in the pipeline.

With so much absorption during the fourth quarter, one would have expected at least one deal in excess of 100,000 square feet. But that was not the case for Northern New Jersey. Instead, there were two mid-sized deals and a plethora of smaller deals in the 10,000 to 50,000 square-foot range. The two largest deals were signed by Price-Waterhouse Coopers (69,922 square feet) at 500 Frank W. Burr Boulevard in Teaneck, and Samsung, which leased 64 percent (94,080 square feet) of the entire Class A office building at 105 Challenger Road in Ridgefield Park.