Transwestern: Increasing Office Demand in New York, New Jersey
Increasing demand for new construction in the Hudson Yards, Manhattan West and World Trade Center areas continues to benefit Manhattan’s office market, reported Transwestern, Houston.
“Large transactions stemming from the demand for new construction continue to shape the fundamentals of the Manhattan office market,” said Transwestern Research Manager Danny Mangru. “Over 50 percent of leasing activity recorded so far in 2017 has taken place in either new construction or majorly renovated buildings, a trend that has dominated the market over the past several years and strengthened in 2017.”
As a result, Manhattan leasing activity surpassed 20 million square feet year to date, on track to outpace 2016 leasing totals, Transwestern reported. The market is especially active for tenants needing more than 50,000 square feet; this tenant mix accounted for most leasing activity during the third quarter.
Across the Hudson River in New Jersey, office rents now approach record levels after years of stagnation, Transwestern said.
Office rents have increased 9 percent during the past two years–the largest two-year increase since 2001-2002, Transwestern Partner and City Leader James Postell said. The market’s current average asking rent, $26.86 per square foot, is the second-highest quarterly average yet seen, nearing the high recorded more than 16 years ago.
“The long-running perception of the historically unchanging nature of office rents in New Jersey is no longer salient,” said Transwestern New Jersey Research Director Matthew Dolly. “As the market has evolved, it seems like every recent office building acquisition in the state is a value-add play where extensive renovations are planned.”
Dolly noted significant property upgrades are accompanied by higher asking rents. Postell said tenants have become much more inclined to renew or relocate to properties based on landlord and management services.
New Jersey office rents increased in eight of the past nine quarters and 16 of the 21 submarkets Transwestern examined experienced year-over-year rent increases, including seven submarkets with rents up more than $1 per square foot from a year ago. “The Hudson Waterfront, Newark/Urban Essex, Short Hills/Millburn and Woodbridge/Metro Park submarkets have experienced the greatest increases,” Transwestern said.
But the pace of leasing slowed in New Jersey during the third quarter with fewer large transactions completed–no new leases were signed for greater than 100,000 square feet, drawing concerns of consolidation, Transwestern noted. Among the 12 largest leases signed during the quarter, 10 were new deals, with leasing strongest among companies in the personal services, legal services, business services and financial services companies.
