The gap between New Jersey’s transit-centric office markets and its suburban locales continued to grow in 2015, driven by the needs of companies seeking to attract a millennial workforce.
Those are the findings of new research by the real estate services firm JLL, which recorded both a drop in vacancy and a small uptick in average asking rents in so-called transit hubs. Overall vacancy in those areas fell to 16.9 percent last year, from 18.6 percent in 2014, while rents moved upward to $30.32 per square foot from $30.18.
That includes urban rail-served submarkets such as the Hudson waterfront, Newark and New Brunswick, along with suburban ones including Metropark, Morristown and Princeton, according to JLL’s spring 2016 Transit Hub Perspective report. Conversely, similar metrics in suburban areas that aren’t connected by mass transit showed little change — with vacancy standing at 27.5 percent and overall average asking rents of $23.68.
Robert Kossar, executive managing director with JLL and head of its New Jersey operations, said the findings back up recent trends in how companies are adapting or relocating their workplace environments in order to lure young talent. And the Garden State is reflective a shift that is taking place beyond its borders, while perhaps more pronounced.
“We’re sort of a case study for the phenomenon,” Kossar said. “We have an extraordinary amount of the suburban office and we can look at that juxtaposed against any of the transit-oriented markets, but accentuated with the markets in immediate proximity to Manhattan … and you can see the difference in the success levels and what’s going on.”
He said developers and landlords in suburban submarkets could start to respond by trying to replicate the live-work-play model around their properties. That would eventually support the needs of millennials as they begin to start families and migrate to the suburbs, albeit on a delayed basis, compared with the habits of past generations.
In the meantime, office locales that are close to a town center and mass transit are continuing to thrive in New Jersey. JLL found that vacancy in Jersey City and Hoboken — a submarket with 18.3 million square feet of rentable space — fell nearly two percentage points in 2015 to 13.6 percent, with average asking rental rates rising 1.2 percent to $37.28.
The standout among suburban transit hubs was the Metropark submarket in Edison and Woodbridge, which saw vacancy fall to 19 percent in 2015 from around 24 percent the year before, JLL found. It also boasted the highest rental rates among central New Jersey submarkets, averaging $30.20 per square foot.
Both Kossar and Stephen Jenco, JLL’s director of suburban tri-state research, said it’s not simply a case of the haves and have-nots between transit hubs and pure suburbs. Within transit hub markets, tenants are increasingly flocking to Class A space, as they were across the state in 2015.
“We saw the migration of that flight to quality, and that’s the same story that we have going on with the transit hub-type markets — you might have the Class A and the Class B buildings, but when you zero in, you have a low vacancy rate for these transit hub markets,” Jenco said. “But then when you drill down to ‘What are your Class A options when you’re a tenant looking for space?’ that vacancy is even lower.”
Kossar said that will likely widen the gap between rental rates in the two types of markets. And he expects developers to respond to the lack of options in the hottest areas.
“There is an undersupply — I think developers are going to get really creative and they’re going to create great spaces in these areas,” Kossar said. “They’re going to be smaller buildings, they’re going to be creative workspaces.
“Essentially you’re going to see smaller projects, I think, particularly in areas like Morristown and even Summit, and to the extent people can combine properties and projects to try to figure out scale, there’s going to be change of uses.”