Jersey City is a Pocket of Strength in a Lackluster Office Market

Evelyn Lee -- NJBIZ Staff -- 11/27/2006

Even in a lackluster year for the New Jersey office market, location still makes a difference.

"In the office market, things right now are pretty flat," says Mike McGuinness, executive director of the New Jersey Chapter of the National Association of Office and Industrial Properties in New Brunswick. There are some more significant vacancies than last year. Landlords are trying to attract tenants with improvement packages.

The overall office vacancy rate for this year hovers around 17 percent, which is usually a sign of a "tenant's market," according to Richard Baumstein, executive director of Cushman & Wakefield in East Rutherford.

In some key submarkets, however, the office market has been performing better, with vacancies at about 10 percent. "When the market is around 10 percent, there's no particular advantage for the landlord or tenant," says Baumstein.

The state's strongest submarket, the experts concur, is the Hudson waterfront, particularly in Jersey City, where the three largest office buildings on this year's list are. In the top spot is 101 Hudson Street, which moved from sixth place on last year's list. Newport Office Center 7, which was No. 8, now ranks second and Newport Tower jumps to No. 3 from No. 13 last year.

The proximity of Manhattan to northern New Jersey will help to boost the office submarket there, says Richard Duenas, senior director of Cushman & Wakefield in East Rutherford. "The New York City market is doing very well," says Duenas. "We'll see substantial push-out to northern New Jersey to take advantage of lower prices, substantially lower prices."

Other strong submarkets include Bergen County, Newark, Metropark and Short Hills, according to experts. As for what makes for a desirable and sought-after location, McGuinness says proximity to mass transit and availability of good schools are defining factors.

Morris and Somerset counties have not fared as well, partly because of industry changes, says Mitchell Hersh, president and CEO of Edison's Mack-Cali Realty, which manages 101 Hudson St. "There's been a lot of job loss in telecommunications so that's resulted in some of the overhang in that market," says Hersh. "Pharmaceuticals, which has historically been an engine of growth, has slowed down dramatically. That's had an impact on a lot of markets."

Fewer new office buildings will be coming on the market, in light of the higher vacancy rates, according to McGuinness. "The vacancy rates have been higher, so the pressure's on to fill the vacancies," he says. "It's keeping new development down."