By Stephen Jenco
Office buildings within the state’s transit hub market record lower vacancy rates and higher rents compared to suburban spaces, according to JLL’s annual research report. Companies continue to pursue office space in proximity to walkable amenity-rich areas and with access to mass-transit options for their workforces and clients.
While the transit hub Class A vacancy rate ticked 40 basis points higher from 2016 to 17.6 percent one year later, it remained nearly 11 percentage points less than the state’s suburban market vacancy rate. Additional availabilities in the Metropark and Princeton submarkets contributed to the higher transit hub Class A vacancy rate.
Newer office buildings housed in transit hub markets posted the lowest vacancy rates, as tenants sought modern work environments for their operations. Buildings completed or extensively renovated since 2000 boasted a vacancy rate of just 15.4 percent in 2017. The only new construction underway in the transit hub markets consisted of a former industrial building at Ironside Newark being converted into 402,530 square feet of office and retail space. Mars Wrigley Confectionery U.S. recently leased 148,460 square feet at the building, after being awarded a 10-year $31.5 million state tax credit to move its U.S. headquarters and 500 jobs here.
Asking Class A rental rates in the suburban New Jersey office market significantly lag their transit hub peers. The suburban average Class A rental rate was $27.05 per square foot at year-end 2017, compared to the average transit hub Class A rental rate of nearly $36.50 per square foot. This more than $9.00 per square foot difference in rents between the suburban and transit hub markets represented the largest discrepancy in more than five years.
Hoboken/Jersey City is home to over one-half of the 31.2 million square feet of rentable Class A space in the state’s transit hub markets. State economic incentives have fueled recent demand here. The Hoboken/Jersey City Class A vacancy rate retreated 19.4 percent in 2016 to 18.0 percent one year later. Contributing to the lower vacancy rate was Tory Burch’s leasing of 93,000 square feet at 499 Washington Boulevard in Jersey City. The fashion designer relocated several of its business units from Manhattan after receiving a 10-year $10.7 million Grow New Jersey award. In addition, L’Oréal USA, which acquired IT Cosmetics in mid-2016, absorbed 60,000 square feet at 111 Town Square Place in Jersey City.
With an average asking Class A rent of nearly $40.25, Hoboken/Jersey City maintained the highest rents among the transit hubs. Class A rents are expected to continue trending upward as landlords boost asking rents in buildings undergoing renovations and improvements.
Despite pockets of higher vacancy rates, the long-term outlook for the state’s transit hub markets remains positive. Solid rent growth is expected for amenity-packed Class A space, which remains on the wish list for office users. These high-end work environments are increasingly being used as employee retaining and recruiting tools by tenants occupying them.
For more information, visit JLL Research