How is the office space market in NJ doing?
There has been a sight decline in vacancies overall. However, the office market remains somewhat flat. Certain areas such as Metro Park, Jersey City, Weehawken, Hoboken and Newark show rent growth.
For instance, in Metro Park we handle 100 Wood Ave., a 130,000 s/f building. Rent is $26 a s/f and only two units are available of 2,500 and 2,300 s/f. Areas such as Red Bank, Westfield, Cranford and Somerville show some growth as well, due to active downtowns and public transit. Developers are thinking big picture. Areas that have dining and shopping for millennials and commuter rail have an advantage.
Exit 120 of the Garden State Parkway is another thriving location that is in demand with low vacancy. It is easily accessible to both the southern and northern NJ workforce. Our exclusive listing at 100 Matawan Rd., a 130,000 s/f class A building, is located there and is doing very well. The owner, Denholtz Associates, recently completed a stunning renovation, which supported our closing a long-term 50,000 s/f lease with iCIMS, a leading recruitment software company.
However, in areas such as Bridgewater, Somerset, Piscataway or South Plainfield, there has been no growth to speak of. It’s going to take long time for that vacant space to fill up. If rents in a Somerset building were $16 a sq. ft. five years ago, they are still $16 a s/f today, maybe even a little less. Vacancies there are anywhere from 25 to 30 percent. Monmouth County took a big hit with the closing of Fort Monmouth, a lot of businesses left and contributed to vacancies there.
Are deal negotiations different today?
Yes. Five or six years ago tenants were asking for more free rent and getting it. For a five- year lease, the expectation was six months free; for a three-year lease, three months free. Landlords were anxious and more open to those types of deals. That is not the case today. One month free, OK. But six months, not likely.
Another difference is that we sometimes see landlords pay moving expenses as an enticement to get an exceptional tenant. Moving an office is a big expense. Most companies prefer to stay in place when their lease is up. If there is no pressing reason to move they won’t. However, if they are considering renewing a five to seven year lease, they want to see what the current rates are and shop to attain knowledge for getting the best deal. In some cases they can pay less than they did five years ago. That will change as time goes on.
What challenges face NJ brokers and their clients today?
There is too much office space to choose from. Rather than five or six choices there may be 15 or 16. It makes the decision making process more difficult. If vacancy rates were a lot lower that would not be the case.
In addition, the time frame it takes from start to finish for the approval process from towns is much longer. What used to be 60 days now takes four to five months. Tenants who want to move need to start the process much sooner than before. Companies can’t wait until the last minute anymore.
If the broker does their job properly with the tenant, they can help narrow down the choices by providing real world insight. For instance, one town may be more difficult to deal with than another. That’s how a broker helps a tenant make a decision and why strong market knowledge is imperative.
David Zimmel is president of Zimmel Associates, the Edison, NJ corporate real estate services firm. His real estate career covers more than three decades of experience and the closing of more than 3,000 corporate real estate transactions. Zimmel Associates represents five million sq. ft. of exclusive office, industrial and flex space throughout New Jersey. For more information, visit www.zimmel.com.