The One Thing New Jersey Landlords Must Know
Savills Studley branch manager Chris Marx and his team have been behind some of New Jersey’s largest leases over the past few years, including Wiley’s 386k SF renewal at 111 River St, Hoboken; the New Jersey Turnpike Authority’s 205k SF lease at the landmark Hess Building in Woodbridge; and Securitas’ 85k SF consolidation into 9 Campus Dr, Parsippany. These deals had one thing in common: landlords knew exactly what tenants wanted.
It’s a strategy Northern New Jersey will need as it heads into the next stretch of the cycle. While leasing along the Waterfront has maintained momentum—with growth in rental rates to match—there are 700k SF that will be coming on the market in the next two to three years, Chris reports. This will add vacancy and could have an impact on continued rent growth. The overall NJ market continues to see a slow decline in availability, especially as large tenants leave their dated suburban corporate campuses for newer buildings.
However, these moves are also creating opportunity, Chris points out. While many office parks around New Jersey have suffered a series of unfortunate events, they’re now trading far below replacement cost to new owners willing to do something about the situation.
“There’s new, well-capitalized ownership entering the market, purchasing these obsolete buildings and putting in $10M-plus in capital expenses,” he explains. “These are not just new lobbies and common areas, but new mechanicals and modern amenities like cafeterias and shared conference centers. And when this happens, availabilities go down and rents rise.”
These tenants don’t want to move from 1980s-era buildings into similar buildings. Office leases are typically 10 to 15 years, and Chris notes that it’s critical that building systems are not giving them issues three or four years after occupancy.
When Securitas was looking for new space, it chose 9 Campus Dr, which was retrofitted into a state-of-the-art building by owner Mack-Cali. Tenants want owners “who are willing to invest not only in common areas, but behind the walls and in sustainability,” Chris says. “And landlords who will do this will lease their buildings within nine to 18 months. If you’re not willing? You might as well just hand the building back to the bank.”
The Rutherford and Secaucus markets, in particular, have seen a surge in leasing activity from buildings that have been dormant for years and have benefited from new ownership. These deals will be over 150k SF in aggregate and were aided by Grow NJ tax incentives, notes Marx.
Earlier this year, Rubenstein Partners and Vision Real Estate Partners purchased Warren Corporate Center in Warren for $136M, 59% below what Northwest Mutual purchased the property for in 2010. Next, it plans to renovate it into a multi-tenanted campus. And last year, Lone Star Funds acquired 5 Paragon Dr in Montvale for $10.7M—half of what its prior owner paid—leasing a large chunk of the space to Flight Centre USA, the parent company of Liberty Travel.
Chris is now keeping an eye on the Waterfront. While Class-A rents have risen 21% over the past four quarters to an average $41/SF (compared to only $28.23/SF for the rest of Northern New Jersey), both rents and vacancy may take a blow when the predicted space hits the market. “It will take a continued repurposing of buildings to make them attractive to users,” he notes.
While Metro Park, Princeton, Hoboken and Jersey City will continue to take the lion’s share of deals, given the needs for companies to be close to transit, beneficiaries of this repurposing trend will include Parsippany, Florham Park, Morristown, Summit and Short Hills, Chris says.