MARKETVIEW

New Jersey Office, Q1 2020

Office market shows early signs of
COVID-19 slowdown
Leasing Activity Net Absorption Availability Rate Avg. Asking Rent
1.29 MSF -252,419 SF 19.58% $26.91

Arrows indicate change from previous quarter.

MARKET OVERVIEW
Facing headwinds from the COVID-19 related
• Driven by a variety of industry segments, leasing economic downturn since March, the North and
activity ticked up from the preceding quarter. The Central New Jersey office markets moderately
overall 1.29 million sq. ft. was 17% behind 2019’s underperformed. Leasing activity was 1.29 million
first quarter total and 23% short of the five -year sq. ft., a 98% improvement over the previous
quarterly average. quarter’s unusually low total, but down almost 17%
year-over-year and 23% behind its five-year quarterly
• The availability rate rose 18 basis points (bps) from average. Expansions and merger and acquisition
the previous quarter to 19.58%, the highest rate since leasing was slowed down, while renewals remained
Q2 2019. Despite the slight increase, the market has active. Average asking rent was up a modest $0.70
been on a slow, but steady path of modest tightening per sq. ft. year-over-year.
since 2016.
In the first quarter, there was little, if any, repricing
• Net absorption was negative 252,000 sq. ft., ending of available space or COVID-19 related space
a previous consecutive three-quarter streak of positive dispositions. There was, however, widespread
absorption. discussion of temporary rent relief measures,
though few agreements have been reached as
• The average asking lease rate was $26.91 per sq. ft., tenants explore their insurance options and
an increase of $0.38 per sq. ft. from the previous consider loans being offered under the federal
quarter and a $0.70 per sq. ft. rise year-over-year. government’s CARES Act. While construction
Over the past five years, average asking rents have continued in New Jersey through the end of Q1, the
risen steadily to a modest $2.04 per sq. ft., or 8.2%, Governor ordered a halt to non-essential construc-
gain.
tion projects as of April 10. This will likely result in
the delayed delivery of projects currently under
construction.

Figure 1: Q1 2020 Notable Lease Transactions | Combined North and Central NJ

Size (SF) Tenant Address City Type
162,860 Hackensack Meridian Health Systems 499 & 399 Thornall Street Edison Lease
157,511 New Jersey Natural Gas Company 1415 Wyckoff Road Wall Renewal
110,000 Deloitte 66 Morris Avenue Morristown Pre-Lease
101,880 John P. Holland Charter School 5 Garret Mountain Plaza Woodland Park Lease
65,441 Huber+Suhner 40 Technology Drive Warren Lease
Source: CBRE Research, Q1 2020.

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Figure 2: Historical Availability Rates vs. Average Asking Lease Rates | Combined North and Central NJ
(%) ($/SF)
25 32

30
20
28
15 26

10 24

22
5
20

0 18
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Q1 2020

Availability Asking Lease Rate

Source: CBRE Research, Q1 2020.

ECONOMY
The COVID-19 pandemic has forced New Jersey and many other state governments to impose strict
stay-at-home orders that are having widespread adverse effects on the national and local economies. This is
leading the U.S. economy into a recession that will result in very sharp declines in GDP for H1 2020 and in
job losses, particularly in the hospitality, retail/food & beverage and transportation sectors. In the first two
weeks of the crisis, nearly 10 million new unemployment claims have been filed across the country. While
it will be several weeks before there is information on the industry composition of this early surge in
unemployment, it is likely that office workers were a small share of the total, and the expectation is for
office-using sectors to be less negatively affected in this crisis than in recent recessions. Additionally, the
unique nature of this downturn should result in an unusually swift recovery that could begin as early as Q3
2020. Assuming the coronavirus peaks this summer in the U.S.—mirroring China’s experience—the U.S.
government’s $5.6 trillion fiscal and monetary stimulus will begin to bear fruit. This will be paired with
pent-up private demand that could help the U.S. economy return to growth by year-end and drive stronger
than previously expected growth in 2021.

Figure 3: Quarterly Leasing Activity | Combined North and Central NJ

(MSF)
2.0

1.0

0.0
Q1 2018 Q2 2018 Q3 2018 Q4 2018 Q1 2019 Q2 2019 Q3 2019 Q4 2019 Q1 2020

Source: CBRE Research, Q1 2020.

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LEASING five-year quarterly average. Still, there were notable

Leasing activity during the first quarter rebounded highlights for the region that included the
strongly from the preceding quarter, but Morristown and Meadowlands submarkets.
underperformed relative to historical norms. At Morristown’s 160,000 sq. ft. of leasing activity
1.29 million sq. ft., Q1 2020 leasing activity (the exceeded its five-year quarterly average by 40%.
sum of new leases and expansions) was up 98% The Meadowlands also outperformed its historic
over Q4 2019, but was nearly 17% behind 2019’s leasing activity, starting 2020 with 100,000 sq. ft. in
first quarter total and 23% short of the five-year activity, nearly 84% higher than the submarket’s
quarterly average. Leasing velocity (the sum of all five-year quarterly average.
new leases and renewals) finished Q1 2020 at 1.75
million sq. ft., up 10% from the preceding quarter, As seen in Figure 5, New Jersey leasing in Q1 varied
but down 15% year-over-year and 26% short of the among industry segments. Energy-related New
five-year quarterly average. Jersey Natural Gas Company’s 157,511 sq. ft.
renewal at 1415 Wyckoff Road in Wall Township
Central New Jersey had 502,000 sq. ft. in leasing and the education-related lease by John P. Holland
activity in Q1, an increase of nearly 60% from the Charter School for 101,880 sq. ft. at 5 Garret
preceding quarter. This represented the strongest Mountain Plaza in Woodland Park, gave a 28%
first quarter of leasing activity for the region since share to the “other” category. The professional and
2017. In addition, Central New Jersey’s 280,000 sq. business services category accounted for 19% of
ft. of renewals marked a notable increase of nearly the leasing velocity, driven by Deloitte’s 110,000 sq.
50% from the preceding quarter. ft. pre-lease at the M Station site in Morristown.

More than three-quarters of Central New Jersey’s Figure 4: Historical Leasing Activity | Combined North and Central NJ
leasing velocity came from three submarkets:
(MSF)
Route 287/78 Interchange, Greater Monmouth 9.0
8.0
County and the Parkway Corridor, which includes
7.0
Metropark. The greater Monmouth County 6.0
submarket was led by a 157,000 sq. ft. renewal with 5.0
4.0
New Jersey Natural Gas Company, a public utility 3.0
company in Wall Township. The submarket’s 2.0
1.0
161,000 sq. ft. in leasing velocity beat the five-year
0.0
quarterly average by 25,000 sq. ft. In addition, the 2015 2016 2017 2018 2019 2020

largest office lease in New Jersey last quarter closed Q1 Q2 Q3 Q4

in the Parkway Corridor, where Hackensack Source: CBRE Research, Q1 2020.

Meridian Health Systems committed to 162,000 sq.
ft. in Edison. The new lease contributed to the
submarket’s strong first quarter leasing activity of
203,000 sq. ft., a 26% boost from the preceding
quarter and its best performance since Q2 2018.

The Northern New Jersey market bounced back

during the first quarter. With 787,743 sq. ft. of
leasing activity, the volume nearly doubled the
sluggish performance from the previous quarter
but was still a bit sluggish at 22% behind the

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Figure 5: Quarterly Leasing Velocity by Industry (sq. ft.) | Combined previous quarter to 19.58%, the highest rate since
North and Central NJ Q2 2019. The quarter-over-quarter rise in
16% availability reverses a five-quarter trend of
19%
declining rates, as the market had been on a slow
but steady path of modestly tightening availability
4%
since 2016.

Availability rates fell or were unchanged in 14 of

17% the 20 individual submarkets. The lowest rate was
in greater Monmouth (14.5%), which has
28%
contracted by 590 bps since Q1 2018. Other tight
0%
markets included the Parkway Corridor (15.0%),
14% Palisades (15.6%), Newark (16.1%) and Suburban
2%
Essex/Eastern Morris (16.6%).

Computer & Software Consumer Products

FIRE Government Figure 6: Quarterly Net Absorption | Combined North and Central NJ
Health Care Life Sciences (SF)
1,200,000
Other Prof. & Bus. Services
1,000,000
Source: CBRE Research, Q1 2020. 800,000

600,000
NET ABSORPTION AND AVAILABILITY
400,000
Net absorption was negative 252,000 sq. ft., ending
200,000
a previous consecutive three-quarter streak of
0
positive absorption. All the quarter’s negative (200,000)
absorption occurred in the Northern New Jersey (400,000)
Q1 2018 Q2 2018 Q3 2018 Q4 2018 Q1 2019 Q2 2019 Q3 2019 Q4 2019 Q1 2020
region, which registered negative 427,000 sq. ft.
The overwhelming majority occurred in the Source: CBRE Research, Q1 2020.
Waterfront submarket, which recorded negative
353,000 sq. ft. of net absorption. 1000 Maxwell Figure 7: Quarterly Availability Rate | Combined North and Central NJ
Lane in Hoboken was added to the submarket
(%)
inventory, bringing 110,000 sq. ft. of new available 24
23
space. Moreover, there were large blocks of
22
available space added to two Jersey City buildings 21
last quarter—139,000 sq. ft. of sublease space at 20
19
480 Washington Boulevard and 149,508 sq. ft. of
18
available direct space at 30 Hudson Street. 17
16
15
Central New Jersey registered positive net 14
absorption of 175,000 sq. ft., most of which was in Q1 2018 Q2 2018 Q3 2018 Q4 2018 Q1 2019 Q2 2019 Q3 2019 Q4 2019 Q1 2020

the Parkway Corridor, which registered 125,000 sq. Source: CBRE Research, Q1 2020.
ft. of positive net absorption.

Overall availability in Northern and Central New

Jersey rose 352,500 sq. ft. quarter-over-quarter,
while the availability rate rose 18 bps from the

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 MARKETVIEW NEW JERSEY OFFICE

Figure 8: Historical Availability Rate | North vs. Central NJ

(%)

30
28
26
24
22
20
18
16
14
12
10
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Northern NJ Central NJ
Source: CBRE Research, Q1 2020.

AVERAGE ASKING LEASE RATE B office product recorded a rate of $23.90,

The average asking lease rate for the Northern and unchanged quarter-over-quarter and growing by
Central New Jersey office market ended the first $0.21 year-over-year.
quarter at $26.91 per sq. ft., an increase of $0.38
per sq. ft. from the previous quarter and a $0.70 per The Waterfront submarket has shown consistency
sq. ft. rise year-over-year. Over the past several in its rental rates, boasting a Class A average rent of
years, average asking rents have steadily crept up $45.45 per sq. ft. and a Class B rate of $33.47 per sq.
by 8.2% and are $2.04 per sq. ft. higher than five ft. The submarket’s Class A rent fell by $0.13 from
years ago. Q4 2019, however, has remained above the $45.00
mark since Q2 2018. Furthermore, the
At quarter-end, the Northern New Jersey region Waterfront’s Class B asking rate remained
recorded an average asking rent of $27.15 per sq. unbroken quarter-over-quarter and has not dipped
ft., while Central New Jersey held a rate of $26.55. below $32.00 since Q1 2017.
Northern New Jersey’s rate notched a 2.1% increase
quarter-over-quarter and a 2.8% uptick from Q1 Figure 9: Quarterly Average Asking Rent | Combined North and Central
NJ
2019. Central New Jersey remained essentially
($/SF)
unchanged from the previous quarter but had a 27.50
2.5% bump from Q1 2019.
27.00

Among the Northern New Jersey submarkets, the 26.50

Waterfront held the highest average asking rent at 26.00

$43.75 per sq. ft., followed by Chatham/Millburn/
25.50
Short Hills ($42.13/sq. ft.) and Palisades ($32.95/sq.
ft.). The highest average asking rent in Central New 25.00

Jersey was in the Parkway Corridor with a rate of 24.50

Q1 2018 Q2 2018 Q3 2018 Q4 2018 Q1 2019 Q2 2019 Q3 2019 Q4 2019 Q1 2020
$32.57 per sq. ft., followed by the Route 287/78
Interchange ($26.93/ sq. ft.) and Princeton ($26.82/ Source: CBRE Research, Q1 2020.
sq. ft.).

The combined average asking rent for Class A office

product finished the quarter at $29.92, rising $0.58
quarter-over-quarter and $1.02 year-over-year. Class

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Figure 10: Quarterly Average Asking Rent Figure 11: Historical Average Asking Rent | Combined North and Central
NJ

($/SF) ($/SF)
27.50 32.00

27.00 30.00

26.50 28.00

26.00 26.00

25.50 24.00

25.00 22.00

24.50 20.00
Q1 2018 Q2 2018 Q3 2018 Q4 2018 Q1 2019 Q2 2019 Q3 2019 Q4 2019 Q1 2020
18.00
New Jersey Northern NJ Central NJ 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Source: CBRE Research, Q1 2020. Source: CBRE Research, Q1 2020.

Figure 12: Office Projects Under Construction | Combined North and Central NJ
Address City Size (SF) Developer
1000 Maxwell Place Hoboken 110,000 Toll Brothers
111 Sylvan Avenue Englewood Cliffs 360,000 LG Electronics
100/200 Metro Boulevard (ON3) Nutley 306,000 Prism Capital Partners
78 John Miller Way Kearny 90,000 Hugo Neu Corporation
Source: CBRE Research, Q1 2020.

UNDER CONSTRUCTION
While construction continued in New Jersey through the end of the first quarter, Governor Phil Murphy
ordered a halt to non-essential construction projects as of April 10. This will likely result in the delayed
delivery of projects currently under construction.

Figure 13: Notable Sales Transactions | Combined North and Central NJ

Address City Size (SF) Price Price/SF
545 Washington Boulevard Jersey City 866,706 $372,000,000 $429.00
Park Avenue at Morris County Florham Park 1,189,484 $311,000,000 $261.00
95 Greene Street Jersey City 342,000 $94,500,000 $276.00
Morris Corporate Center 1 & 2 Parsippany 543,766 $58,500,000 $108.00
50 West State Street Trenton 266,982 $29,825,000 $112.00
Source: CBRE Research, Q1 2020.

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INVESTMENT SALES
The largest office sale by square footage in Q1 2020 was Park Avenue at Morris County— a six-building
trophy office complex in Florham Park totaling 1.2 million sq. ft. At a sale price of $311 million, Park
Avenue is the largest suburban, multi-tenant office sale since 2008. CBRE’s Institutional Properties team
represented the seller, KBS Real Estate Investment Trust II (KBS REIT II), and procured the buyer, a private
New York City based investor backed by offshore capital. During its ownership, KBS implemented a slew of
amenity and building upgrades including a new fitness center with basketball courts and soccer fields, a
car wash, dry cleaner, upgrades to the HVAC systems and elevators, as well as shuttle services and electric
car charging stations. These improvements helped boost occupancy to 88% and pushed rents to top-of-the-
market levels.

Also closing in the first quarter was the $372 million acquisition of 545 Washington Boulevard in Jersey
City, where Harbor Group International purchased the 866,706 sq. ft. Class A office building from the
LeFrak Organization. The trophy Waterfront property was 100% leased at the point of sale, with Verisk
Analytics and JP Morgan Chase occupying approximately 80% of the building.

The Waterfront also saw the acquisition of Liberty Innovation Centre at 95 Greene Street in Jersey City.
Thor Equities purchased the 342,000 sq. ft. Class A building from SJP Properties for $94.5 million.
Originally a Colgate-Palmolive manufacturing facility, the building has since been fully repositioned and
outfitted to accommodate life sciences, healthcare, green/agricultural technology, and biotechnology
companies in the supply-constrained New York City area. This sale seeks to bring life sciences firms to the
Waterfront in a region that already boasts a strong life sciences footprint throughout Central New Jersey.

Another notable suburban sale closed in Parsippany, where P3 Properties, already the owner of Morris
Corporate Center 3, acquired Morris Corporate Center 1 & 2 for $58.5 million from Brookwood Financial
Partners. The two buildings, located at 300 Interpace Parkway and 1 Upper Pond Road, make up 543,766
sq. ft. of class A space. Currently 67% occupied, the properties are host to noteworthy companies such as
Wallenius Wilhelmsen, Zurich Insurance Group, York Risk Services and ICAP.

Moreover, the sale of 50 West State Street in Trenton represented another significant suburban sale, where
Office Properties Income Trust sold the 266,982 sq. ft. building to Signature Acquisitions for $29,825,000.
At the time of sale, the building was 81% occupied, with approximately 90% of the leased square feet being
occupied by government entities such as the NJ Department of Treasury and the Internal Revenue Service.

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 MARKETVIEW NEW JERSEY OFFICE

Figure 14: Q1 2020 Market Statistics

Market Available Availability Avg. Asking Leasing Net YTD Net

Submarket Rentable Rate (%) Lease Rate Velocity Absorption Absorption
(SF)
Area (SF) ($/SF/Yr) (SF)* (SF) (SF)

Orange/Rockland 2,553,775 544,902 21.3% $21.39 21,281 17,328 17,328

Palisades 5,048,682 789,545 15.6% $32.95 54,267 (58,059) (58,059)
Montvale/Woodcliff Lake 3,422,171 773,529 22.6% $26.60 1,388 (85,072) (85,072)
Route 17 Corridor 2,849,764 547,704 19.2% $24.66 0 23,047 23,047
Central Bergen 5,770,777 1,141,005 19.8% $26.38 41,100 (21,935) (21,935)
Route 23/Paterson/Wayne 5,808,886 1,600,605 27.6% $19.38 144,430 30,201 30,201
Waterfront 18,974,566 3,920,617 20.7% $43.75 88,709 (353,839) (353,839)
Meadowlands 5,085,157 1,193,639 23.5% $25.03 184,628 (56,850) (56,850)
Newark 12,935,510 2,080,761 16.1% $29.04 89,571 42,556 42,556
Suburban Essex/Eastern Morris 8,397,048 1,394,993 16.6% $24.16 36,171 76,613 76,613
Parsippany 14,000,952 3,965,759 28.3% $27.12 101,818 12,722 12,722
Morristown 8,847,549 1,490,965 16.9% $28.35 208,045 (22,560) (22,560)
Western I-80 Corridor 710,980 229,608 32.3% $22.72 0 (12,905) (12,905)
Chatham/Millburn/Short Hills 899,881 254,473 28.3% $42.13 0 (18,848) (18,848)
Northern New Jersey Total 95,305,698 19,928,105 20.9% $27.15 971,408 (427,601) (427,601)
Parkway Corridor 9,442,034 1,412,550 15.0% $32.57 273,189 124,670 124,670
Route 287/78 Interchange 19,853,649 3,304,382 16.6% $26.93 207,632 20,403 20,403
Western Route 78 2,434,350 415,649 17.1% $19.11 15,571 (4,021) (4,021)
Route 287/Piscataway/Brunswicks 8,266,005 1,998,164 24.2% $22.06 80,458 44,960 44,960
Greater Monmouth County 5,011,672 726,750 14.5% $24.54 161,298 (6,363) (6,363)
Princeton 15,500,244 2,719,232 17.5% $26.82 41,430 (4,467) (4,467)
Central New Jersey Total 60,507,954 10,576,727 17.5% $26.55 779,578 175,182 175,182
New Jersey Total 155,813,652 30,504,832 19.6% $26.91 1,750,986 -252,419 -252,419

Source: CBRE Research, Q1 2020.

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 MARKETVIEW NEW JERSEY OFFICE

Figure 15: New Jersey Office Submarkets CONTACTS

Nicole LaRusso
Director, Research & Analysis
+1 212 984 7188
Nicole.LaRusso@cbre.com
1

4 Brian Klimas
3
Field Research Manager
13
6 5 2 +1 201 712 5633
11
Brian.Klimas@cbre.com
8
10
12
15 9 7 Aram Barmakian
16 Research Data Analyst
14
17 +1 201 712 5671
18
Aram.Barmakian@cbre.com

CBRE OFFICES

20 Saddle Brook
19
Park 80 West, Plaza Two
250 Pehle Avenue, Suite 600
Saddle Brook, NJ 07663
1. Orange/Rockland 11. Parsippany
2. Palisades 12. Morristown East Brunswick
3. Montvale/Woodcliff Lake 13. Western I-80 Corridor Two Tower Center Boulevard, 20th Floor
4. Route 17 Corridor 14. Parkway Corridor East Brunswick, NJ 08816
5. Central Bergen 15. Chatham/Millburn/Short Hills
6. Route 23/Paterson/Wayne 16. Route 287/78 Interchange
Florham Park
7. Waterfront 17. Western Route 78
100 Campus Drive
8. Meadowlands 18. Route 287/Piscataway/Brunswicks
9. Newark 19. Greater Monmouth County Florham Park, NJ 07932
10. Suburban Essex/Eastern Morris 20. Princeton
To learn more about CBRE Global Research, or to
access additional research reports, please visit the
Global Research Gateway at:
www.cbre.com/researchgateway.

DEFINITIONS

Asking Rent: Weighted average asking rent.

Availability Rate: The amount of space currently being marketed for lease, divided by the total current inventory of built space in the market, expressed as a percentage.
Leasing Activity: Total amount of sq. ft. leased within a specified period of time, including new deals, expansions, and pre-leasing, but excluding renewals.
Leasing Velocity: Total amount of sq. ft. leased within a specified period of time, including new deals, expansions, and pre-leasing and renewals.
Net Absorption: The change in the amount of occupied sq. ft. within a specified period of time.
Percentage of Leasing by Industry: The percentage of sq. ft. leased by an industry based on transactions where a tenant and industry have been confirmed.
Taking Rent: Actual, initial base rent in a lease agreement.
Vacancy: Unoccupied space available for lease.

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