By Joshua Burd
For all of the appeal of having office space near a train station, eight of New Jersey’s best-known “transit hub” submarkets took a collective step back in 2017, although they continue to stand apart from the state’s suburban highway corridors.
That’s according to new research by JLL, which surveyed office space in Hoboken and Jersey City, Newark, New Brunswick, Trenton, Metropark, Morristown, Princeton and Summit. The annual report by the real estate services firm found that vacancy crept upward over a two-year period, while average asking rental rates fell alongside diminishing demand.
“Yellow signals remained in effect for several of the Northern and Central New Jersey transit hub markets during 2017 as the combination of additional vacancies and downshifting leasing velocity exerted upward pressures on vacancy rates,” JLL researchers wrote in the report. “Since bottoming out below 17.0 percent in 2015, the overall transit hub vacancy rate ticked higher for the next two years. By the end of 2017, the transit hub vacancy rate had reached 19.5 percent, which represented a 30 basis point increase from 2016.”
The report — led by Stephen Jenco, JLL’s vice president for suburban tristate office research — highlighted a pullback in office requirements in both urban and suburban transit hubs last year. After averaging more than 3 million square feet of leasing per year from 2014 through 2016, those submarkets recorded less than 2 million square feet of deals during 2017, representing a nearly 42 percent decline in activity.
That caused average asking rental rates to slip from nearly $32.50 per square foot in 2016 to less than $32 one year later, the report found. With the exception of Morristown, Newark and New Brunswick, the remaining five transit hub markets registered lower year-over-year asking rents.
Still, JLL said the eight submarkets continue to separate themselves in the state’s office landscape, noting that vacancy in suburban, highway-reliant submarkets was still more than six percentage points above the rate posted in the transit hubs. And there is reason for continued optimism, with several high-profile deals this year and indications that future demand could reverse the trend from 2015 to 2017.
“Despite the higher transit hub vacancy rate seen in 2017, green signals are expected to return as companies pursue office space options in proximity to walkable amenity-rich areas and with access to mass-transit options for their workforces and clients,” the firm wrote. “Among the comments being voiced by office occupiers spanning a broad spectrum of business sectors is the desire to locate their operations near millennials and with access to mass transportation.”
That includes the continued population growth and residential construction in Hoboken and Jersey City, the largest submarket within its survey with 18.3 million square feet of rentable office space. In Newark, the firm highlighted Mars Wrigley Confectionary U.S.’s 148,460-square-foot lease at Ironside Newark, an adaptive reuse project by Edison Properties.
The report also recounted the benefits of the 4.8 million-square-foot Metropark submarket in Woodbridge and Edison, even though vacancy rose to nearly 22 percent in 2017 from 19 percent in the two years prior. That uptick was driven in part by large blocks of space hitting the market, but JLL said the region still shows year-to-year appeal.
“Despite the higher vacancy rate, the Metropark submarket is well positioned to maintain its status as Central New Jersey’s preeminent office marketplace,” the report said. “The close proximity to highways and public transportation, as well as nearby amenities, differentiate it from surrounding competitive markets and will keep this market on the radar screen of office occupiers.”