Lease Renewals Strong in Otherwise Uncertain New Jersey Office Sector

The Northern/Central New Jersey office market experienced strong lease renewal activity during this year’s third quarter as tenants opt to stay in place in the midst of turbulent economic times, according to a report by CB Richard Ellis Inc. But questions hover over New Jersey office market in general, the major one being the effect of the Wall Street meltdown on office leasing in the Northern and Central parts of the state. It was thought that the market would benefit from corporate tenants seeing Northern and Central New Jersey as a relative bargain, compared to the rising rent and lower vacancy scenario that did prevail in Manhattan, said Ray Sohmer (pictured), senior managing director at CB Richard Ellis. But job losses on Wall Street will mean more available office space coming to the Manhattan office market. Sohmer said he has seen corporations looking at office space in the Northern/Central New Jersey office market, but he said many may be doing that to throw a scare into their Manhattan landlords. He said he is not seeing many corporate moves from Manhattan into the market. In fact, Jersey City may see some movement of some of its financial tenants back into Downtown Manhattan if a large inventory of space does hit the market, he said. “If you see a ton of space on Wall Street, some companies may figure they want to have offices that are closer to their people and closer to their infrastructure,” Sohmer said. Some New Jersey submarkets are showing relative strength, according to the report, such as Chatham/Millburn/Short Hills; the Waterfront; and Route 287/78 Interchange. The quarter was dominated by short-term transactions, as users are looking to short-term solutions to pending lease expirations. The top five transactions that closed during the third quarter all had a renewal component. The top two were Everest Reinsurance’s 230,500-square-foot renewal at 477 Martinsville Road in Liberty Corner; and Novartis’ renewal of 220,000 square feet at 180 Park Avenue in Florham Park. Apart from the Waterfront, Route 287/78 Interchange and Parsippany submarkets, New Jersey’s leasing velocity slowed in the third quarter, totaling 1.17 million square feet, a 625,500-square-foot decrease from last quarter, and a 770,000-square-foot decrease from last year at this same time. And, closing at its lowest year-end total since 2004, third quarter net absorption–which is expected to remain in negative territory through the remainder of this year–totaled negative 698,200 square feet, a difference of 143,500 square feet from the second quarter. Submarkets that experienced the highest positive net absorption include the Palisades (80,000 square feet), Route 287/78 Interchange (40,000 square feet) and the Meadowlands and Route 17 Corridor (both at 30,000 square feet). The amount of office sublease space that hits the market is one indicator that Sohmer said he will be watching closely, as well as corporate earnings reports and job statistics. “Jobs equal square feet,” he said. Also, New Jersey Gov. Jon Corzine has revealed an economic stimulus package, not yet approved by the state legislature, which includes a corporate incentive package. The battle to attract corporations among Corzine, Pennsylvania Gov. Ed Rendell, and New York City Mayor Michael Bloomberg should be interesting to watch, Sohmer said.