By Joshua Burd
Only a third of northern and central New Jersey’s top office buildings are less than 10 years old or have been significantly improved within that span — but their owners are reaping the benefits.
A new report by JLL said as much, noting that the 20.2 percent vacancy rate in so-called Premier Class A properties is nearly six percentage points lower than the broader Class A inventory. Owners of such buildings are also commanding rents that are 30 percent higher than in other top-end spaces, while average asking direct rents are growing at a slightly faster rate.
The research focuses on 500 Class A buildings that JLL tracks in northern and central New Jersey, highlighting a bifurcation that has emerged across the Class A category. It noted that only 37 percent of that inventory, which totals around 109 million square feet, qualifies as Premier Class A space by virtue of its age or the date of substantial renovations.
In the past year, those buildings have secured 65 percent of all office leases greater than 50,000 square feet in the region, JLL said.
“Despite macroeconomic headwinds faced by the office market, newly constructed or recently
renovated buildings offering premium amenities will remain on the radar screen of tenants with large space requirements,” JLL wrote in the report. “Flight-to-quality migration will persist in the office market, as tenants prune outdated workspaces and relocate into higher quality assets.
Tenants will continue to invest in premium office space to optimize their return-to-work strategies, as well as aid in employee retention and recruitment efforts.”
The research highlights several other key points:
- The average office building in northern and central New Jersey is more than 30 years old.
- Two-thirds of the region’s Premier Class A buildings are in North Jersey.
- The Hudson waterfront has the largest supply of Premier Class A space in northern New Jersey, with 8.2 million square feet, while asking rents in that region average $46.46 per square foot.
- 80 percent of the Premier Class A buildings in Central Jersey are within the Princeton and Interstate 78 submarkets.
- The gap in vacancy between Premier Class A and Class A buildings in Parsippany is 25.8 percent, the largest delta statewide.
- Four out of the five largest office deals over the past year were in Premier Class A buildings, including:
- Bank of America’s 550,000-square-foot renewal and expansion at 525 Washington Blvd. in Jersey City
- NJ Transit’s 444,420-square-foot lease at 2 Gateway in Newark
- Kenvue’s 191,450-square-foot lease at Summit East in Summit
“Outdated, high-vacancy office buildings will need to be extensively renovated to improve occupancy levels, or converted to alternative uses,” JLL wrote. “However, elevated interest rates and limited liquidity will continue to hinder investors’ ability to not only purchase buildings in need of capital investment, but also execute value-add programs.”
