Aggressive incentives from the landmark New Jersey Economic Opportunity Act of 2013 (EO13) continue to stimulate office leasing and renewals in the state as companies target large blocks of space primarily in the suburbs, according to Avison Young’s second quarter 2014 New Jersey office market analysis.
“In a strengthening state economy and stabilizing office market, companies in New Jersey continue to take advantage of the unprecedented incentives offered under the latest legislation,” said Jeffrey Heller, Avison Young principal and managing director of the firm’s New Jersey office.
“Whereas activity in previous quarters was largely focused on the state’s urban centers, increased leasing in the suburbs during the second quarter clearly demonstrates the far-reaching effectiveness of these incentives.”
Avison Young’s report notes that, in a state from which residents and businesses were emigrating at steep rates in previous years, New Jersey has been particularly effective in retaining jobs through its incentives program.
While the highest incentive bonuses are granted under the law to urban centers and transit hubs, businesses targeted nearby suburban areas during the quarter, seeking to capitalize on the more than $4 billion in tax credits approved by the New Jersey Economic Development Authority (EDA) since 2010.
According to Avison Young, the office vacancy rate in New Jersey increased slightly to 21.3 percent since the first quarter of 2014 as corporate consolidations and vacated space narrowly outpaced leasing activity.
Despite the minor increase in vacancy, demand for high-quality office space remained strong, nudging the average asking rent to $23.59 per square foot (psf), a $1.01 increase year-over-year.
“While businesses continued to reassess their space needs to fit within an evolving workforce and technological landscape, the Economic Opportunity Act has been effective in counteracting consolidations and increased vacancies,” noted Matthew Dolly, Avison Young’s vice president of research in New Jersey.
“Overall, the outlook for the office market remains positive, as recent studies have indicated that business owners are optimistic about near-term company growth and hiring initiatives.”
Avison Young reports that, during the second quarter, New Jersey’s unemployment rate decreased to a six-year low, improving to 6.8 percent. A slow, but steady, economic recovery in the state has opened the door for growth in the small-business sector, although the firm cautions that the regional economy is not expected to reach its peak employment until 2018.
In previous quarters, Avison Young reported torrid leasing activity in northern New Jersey, specifically in Newark, Jersey City and Hoboken.
During the second quarter of 2014, large-scale absorption in neighboring well-located suburbs helped to offset more than 500,000 s/f coming to the market.
Overall, this leasing activity, spurred by EO13, slightly lowered the overall vacancy rate in northern New Jersey to 22.4 percent from 22.6 percent in the previous quarter.
Manufacturer Automatic Switch Co. (ASCO) headlined leasing activity in the area, acquiring a 250,589 s/f vacant office building in Florham Park after contemplating relocation to North Carolina.
The firm received a $9.1 million award from the EDA because the lease helped offset a blitz of corporate downsizings in Morris County as the vacancy rate in the county fell to 27.7 percent from 31.4 percent one year prior.
Other companies signing leases in Morris County during the past quarter include Emergency Medical Associates, Atlantic Health and FM Global. Avison Young’s analysis also finds that, along with ASCO, several companies were retained in the region, stimulated by the tax credits from EO13.
Unilever, which also considered space in New York and Connecticut, was awarded $40 million to stay in Englewood Cliffs, where it retained 1,600 employees.
RBC Capital Markets (Royal Bank of Canada) and JPMorgan Chase were offered $78.7 million and $224 million, respectively, to lease space in Jersey City.
The anticipated relocation by Royal Bank of Canada would bring 900 jobs from Manhattan, while JPMorgan has committed to remain in the state, retaining more than 2,600 jobs and adding 1,000 jobs in the next 10 years.