By Joshua Burd
A flurry of large leases provided a jolt to New Jersey’s office market in the second quarter, but the story was vastly different when it came to investment sales.
Fortunately, there are signs of a rebound on the horizon.
Jeremy Neuer, an executive vice president with CBRE, said he believes Q2 was more of a blip than a sign of things to come for office building sales. He pointed to his firm’s own pipeline in northern and central New Jersey, which includes two deals involving large Class A properties that should close this summer and two others that are just hitting the market.
In a case like this, timing is everything.
“When you consider that our marketing period is about four to five months, people don’t like to launch deals in December,” said Neuer, a co-leader of CBRE’s New Jersey capital markets group, later adding: “It’s just a matter of the calendar and our timeline and horizon.”
It should be welcome news after the slowdown in Q2, which stood in contrast with the encouraging signs on the leasing front. Researchers with CBRE found that only 13 office buildings in northern and central New Jersey changed hands during the period, down substantially from the 30 sales tallied in the first quarter of the year.
Those sales totaled 841,837 square feet and $79.6 million in value in Q2, CBRE said, versus nearly 3.3 million square feet and $481.6 million in the first three months of the year. When it came to buildings of at least 75,000 square feet, there were just four deals inked, as opposed to 15 such deals in Q1.
Neuer also pointed to another key factor in the market — a slowdown by Mack-Cali Realty Corp. The company has been a major driver of investment sales in New Jersey’s office sector since 2016 — as both a buyer and seller — but said it would be winding down its transactions this year.
“Mack-Cali certainly was a very large player in a big way in the capital markets arena in the last two years,” Neuer said. “But now they’re not as big a player. They’re not buying, and the buildings that they’re selling are not as big, so they’ve done a lot of the heavy lifting to revamp their portfolio.
“So what we’re seeing is not necessarily a dip in activity, but just a dip in a three-month cycle.”
The market will only benefit if leasing activity stays on the pace that was set in the second quarter. CBRE’s market report found that leasing volume rebounded in Q2, thanks largely to several deals of more than 125,000 square feet.
Those leases included Ralph Lauren’s 255,017-square-foot commitment at 100 Metro Blvd. in Nutley, part of the ON3 campus owned by Prism Capital Partners. Total leasing activity in the region reached 1.9 million square feet for the quarter, a 66.5 percent increase quarter-over-quarter and 6.4 percent higher than the five-year average.
Northern and central New Jersey did experience negative net absorption as a result of large blocks being put on the market, but insiders have been encouraged by the recent high-profile deals after several slow quarters.
“New Jersey rebounded nicely during the second quarter of the year, with large tenants either inking new leases or renewing their space commitments throughout the state,” said Rémy deVarenne Jr., senior vice president with CBRE. “In addition, national companies such as Mars Wrigley and Teva Pharmaceutical are coming to New Jersey from other states bringing new jobs and economic vitality to the region.
“As we predicted in our first quarter report, there is real optimism for the remainder of the year especially on the leasing front, as several large deals that we are monitoring are on track to close in the third quarter of 2018.”
Here are the top five office investment sales in New Jersey in Q2, according to CBRE.
- 200-700 Lanidex Plaza in Parsippany (335,060 square feet): $11 million ($33 per square foot)
- 395 West Passaic St. in Rochelle Park (100,589 square feet): Price not disclosed
- 3490 U.S. Highway 1 in Princeton (100,000 square feet): $5.2 million ($52 per square foot)
- 1 Corporate Place South in Piscataway (90,000 square feet): $10 million ($111 per square foot)
- 2 Executive Drive in Somerset (82,000 square feet): $6.8 million ($83 per square foot)