Morris, N.J. office market see gains in second quarter

Office markets in New Jersey and the Morris County area saw gains in the second quarter of 2016, according to a report released last week by the commercial real estate firm the CBRE Group. But some of the Morris markets still lag behind the state averages in terms of recovery.

A CBRE statement analyzing its Q2 New Jersey Office MarketView Report showed that the highest quarterly leasing levels in the state were seen in submarkets identified as the Route 287/78 Interchange (386,946 square feet), Parsippany (303,785 square feet), the Meadowlands (285,271 square feet) and Suburban Essex/Eastern Morris (214,969 square feet). Those submarkets, which comprise 30.4 percent of New Jersey’s total office inventory, accounted for 55 percent of the state’s total leasing velocity.

“Key office market indicators in New Jersey are at their strongest point in the past seven years — a fact that can be attributed to the robust demand we’re experiencing, paired with a dwindling supply, particularly when it comes to Class A product,” said CBRE Senior Vice President Greg Barkan. “While New Jersey’s waterfront and lifestyle markets have dominated leasing activity over the past several quarters, the state’s traditional suburban submarkets made an astounding comeback in Q2.”

By example, Barkan pointed to global pharmaceutical company Daiichi Sankyo consolidating its two New Jersey offices, in Parsippany and Edison, to a single 306,999-square-foot space at 211 Mount Airy Road in the Basking Ridge section of Bernards.

But while that deal added to growth in the 287/78 submarket, which reduced its vacancy rate to 13.7 percent, that deal cut into gains in Parsippany, where the vacancy rate now stands at 27.9 percent, well below the state average of 20.6 percent and the Northern New Jersey average of 22.4 percent.

”Office tenants continue to make their real estate decisions with the employee and client experience at the forefront of the thought process,” said CBRE Executive Vice President Joseph Sarno. “New Jersey’s office market offers these tenants the unique ability to create space efficiencies and house employees in a single, collaborative environment. As a result, we’re seeing these consolidations and headquarters relocations in both the lifestyle and suburban office markets.”

The Morristown submarket, with a vacancy rate of 29.4 percent, also fell short of the state average, although at $28.90 per square foot, the average asking monthly lease rate in Morristown was above the state average of $25.66 and the Northern New Jersey Average of $25.90.

The commercial office vacancy rate in every submarket existing in or intersecting with Morris County, however, has improved over their respective lowest points since the 2008 recession, according to CBRE. The vacancy rate in the Parsippany submarket, for example, bottomed at 32.6 percent in the third quarter of 2014, while Morristown bottomed at 31.2 percent in the fourth quarter of 2013.

The average asking lease rate in the Parsippany market, meanwhile, at $24.77 per square foot, remained below the state average. Space in the 287/78 submarket was a relative bargain at $24.58.

One of the strongest commercial office markets in the state was along the commuter rail corridor submarket identified as Chatham/Millburn/Short Hills, where the vacancy rate has dropped to 10.6 percent and the average asking lease rate is a healthy $31.52. That market has improved substantially since it bottomed out at 20.4 percent in the second quarter of 2012.

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The highest vacancy rate in the New Jersey office market was identified in the report as the Western I-80 corridor, which includes portions of western Morris County. But that 71 percent vacancy rate is skewed by the continuing availability of the former BASF headquarters in Mount Olive, a 970,000-square-foot facility built in 1994 and closed in 2004.

The lowest vacancy rate in the state — 7.8 percent — was registered in the Western Route 78 submarket (Hunterdon County).

The highest New Jersey submarket average asking lease rate of $35.33 was along the "Gold Coast" Hudson River waterfront, where the vacancy rate is 12.8 percent.

CBRE reports track more than 5 million square feet of current demand in the New Jersey office marketplace. The Q2 report, according to the accompanying statement, anticipates strong leasing velocity for the remainder of the year throughout the state.

More than 55 percent of Q2 lease commitments in the state over 50,000 square feet received tax incentives from the Grow New Jersey Assistance Program, leading to the creation of 661 new jobs, and retaining 1,487 jobs in New Jersey, according to CBRE

“Evolving tenant preferences and the desire for open and collaborative work environments will continue to invigorate New Jersey’s suburban markets,” Sarno said. “We expect this demand will further compress the availability rate in New Jersey, elevating the average asking lease rate to historical highs.”

Staff Writer William Westhoven: 973-917-9242; wwesthoven@GannettNJ.com.