By Joshua Burd
While office leasing in the state has been tepid for most of the year, financial technology firms in Mercer County have provided a rare bright spot in recent months.
Separate market reports by two real estate services firms, JLL and Newmark Knight Frank, each highlight deals by so-called fintech firms that were among the most notable leases in the third quarter. Chief among them was an 88,760-square-foot transaction in Lawrenceville by Billtrust, an invoicing and payment software firm that is currently based in Hamilton.
The company said in late August that it would move its headquarters to 1009 Lenox Drive in Lawrenceville, thanks in part to a 10-year, $12.9 million tax credit package from the state.
“Among the markets generating headlines during the third quarter was the Princeton submarket,” JLL wrote in a summary of the report. “After a mere 18,560 square feet was absorbed in the Princeton Class A market during the second quarter, a rebound in leasing momentum produced more than 172,000 square feet of positive net absorption three months later.”
Both JLL and Newmark Knight Frank pointed to the slow growth of traditional office-using sectors as a drag on office leasing. But the latter noted that Billtrust was awarded the state incentive package after committing to retain 228 jobs here and creating another 200.
“The technology company’s relocation is part of a flight-to-quality trend, as 1009 Lenox Drive features extensive amenities, including a full-service café, fitness center, volleyball court and walking trails that connect to the Delaware and Raritan Canal State Park,” NKF wrote in its own report. “The property, which offered the largest available block of Class A space along I-95 in the Princeton area, also provides five parking spaces per 1,000 square feet.”
JLL highlighted other nearby deals by tech firms serving the finance sector, including S&P Global’s 75,000-square-foot lease at 1 Independence Way in South Brunswick. All told, the firm said Class A vacancy in the Princeton submarket slipped below 26 percent in Q3 after eclipsing 27 percent earlier this year.
The region provided a high note in a market that has struggled to follow up the success of 2016. According to JLL, a trend of diminished leasing volume continued into Q3, as activity totaled a mere 1.4 million square feet. The firm said year-to-date leasing velocity was 5.1 million square feet, representing a nearly 50 percent decline from the same timeframe last year.
Against this backdrop, overall office vacancy in northern and central New Jersey rate ticked downward to 24.5 percent from 24.6 percent at midyear, JLL found. The vacancy rate remained 50 basis points higher from one year ago.
JLL also noted that most of the demand since the beginning of the year has been fueled by smaller leases, rather than the 100,000-square-foot-plus transactions needed to put a significant dent in the office vacancy rate. The firm found that only 5 percent of leases completed since the beginning of 2017 were in excess of 100,000 square feet, compared with 15 percent of leases during the same timeframe a year ago.
Outside of fintech, other notable Q3 deals included Modern Meadow’s 72,900-square-foot commitment at the former Hoffmann-LaRoche campus in Nutley, now known as ON3. The biotech firm — which develops collagen proteins to make leather, rather than using animals — has relocated from Brooklyn after being awarded a $32 million tax credit from the state Economic Development Authority.
Newmark Knight Frank, which tracks availability in the market, recorded an uptick in that number from 22.9 percent to 23.1 percent. That included a rise in availability in the Interstate 287 and Route 22 submarket, which saw 410,482 square feet of negative net absorption in Q3, as Big Pharma industry mergers and acquisitions resulted in new large blocks of space.
Average asking rents have moved up slightly from midyear, but New Jersey continues to grapple with slow growth. Both real estate firms pointed to job gains in the state that were focused largely around the leisure and hospitality sector and in construction, neither of which is a major driver of the office market.
“Traditional office-using job sectors — professional services and financial activities — continue to post slow but positive growth,” Newmark Knight Frank wrote. “These gains have not been enough to stimulate net new demand in the office market, although growth in the tech industry and relocations from other markets are helping to backfill available space.”