While the demand for office space in most of New Jersey remains “sluggish,” the region “benefits from having one of the tri-state’s strongest suburban office markets — Princeton and Mercer County,” said Kimberly Brennan, senior managing director of Cushman & Wakefield in a just-released second quarter report. “The momentum emanating from that market,” Brennan adds, “coupled with the recent activity in adjacent Middlesex County, should fuel a region-wide rebound.”
One of the major components of the rebound is the leasing of what might have been an “obsolete” property, the 491,000-square-foot former headquarters of Continental Insurance in Cranbury, The full-building lease by Lam Cloud Management is intended to convert the former single-tenant property into a multi-faceted data center (U.S. 1, April 3, 2013).
That transaction accounts for nearly half of 1 million square feet of vacant space that was leased in the second quarter in central New Jersey.
“While some office properties might be considered ‘obsolete,’ the real estate they occupy remains valuable and poised to be repositioned,” says Brennan, who began her career with Cushman & Wakefield, moved to CB Richard Ellis, and then was hired back by Cushman & Wakefield in 2005. “Data centers provide another plus for the market — both from the standpoint of the conversion of older office properties, and also in the economic strength they have, in general, brought to this region.
In a similar transaction, Memorial Sloan Kettering Cancer Center purchased 480 Red Hill Road in Middletown, a 285,000-square-foot vacant building that once housed Lucent, with plans to convert it to a cancer care center.
“New Jersey’s improving job creation picture is already having its impact on the Central counties, as the overall decline in vacancy indicates,” said Brennan. “We expect that trend to continue in a market that does offer numerous opportunities for companies to grow and expand.
New leasing activity for the quarter amounted to more than 1 million square feet, with most of that concentrated in Middlesex County. Year-over-year, new leasing is up 19.3 percent.
Brennan’s reports listed “notable renewals in the quarter,” all in the 20,000 to 40,000-square-foot range, and included Abbot Labs at 2 Research Way in Princeton Forrestal Center. Vacancies in the second quarter ended at 11.7 percent in Mercer County.
In terms of rental rates, the report continues, the region’s class A average rate of $26.35 per square foot has risen by 3.4 percent year-over-year, and by $0.90 per square foot since the end of the first quarter. “While the overall numbers haven’t shown significant improvement, there is cause for optimism in the increasing stability — and stability invariably leads to growth and improvement,” said Brennan. “In addition to the leasing opportunities that exist statewide, let us not forget the other opportunities that present themselves to creative investors and developers.
“With its geographic central location within the important East Coast corridor, coupled with aggressive incentives offered by the state, New Jersey — and by extension its office market — anticipates a positive future,” she said.