4C — February 28 - March 12, 2020 — Commercial Office Properties — M id A tlantic Real Estate Journal
www.marej.com
C ommercial O ffice P roperties By W. Joshua Levering, SIOR, NAI James E. Hanson Optimism continues to be on the horizon for the office market
T
he Northern New Jer- sey office sector saw strong leasing, invest-
ments, both large and small, throughout the year. Although users included a wide range of
in-house to provide a one-stop service provider platform. There are a number of topics
and investors competing for investment opportunities. The current inventory of function-
Although the region’s stan- dard office vacancy rates have historically hovered in the 7-9% range, our current office vacancy rate continues to stay elevated in the 12-16% range. However, the lease up of exist- ing inventory combined with the demolition of functionally obsolete space will continue to drive vacancy rates lower over the next year. As a result, vacancies will most likely drop by 1-2% this year and a steady decrease will continue for years to come. 3) Rental rates will continue to slowly rise. Today’s office tenants de- mand amenities and capital improvements that enhance the overall workplace environ- ment. However, these capital improvements and amenities can become quite expensive, forcing employers to weigh the costs against the benefits in the short and long terms. From an owner’s perspective, the costs to run an office build- ing continues to rise. With ten- ants largely demanding quality and efficiencies and owners needing to recapture higher expenses within the rents, we will continue to see pressure on the ever-increasing rental rate, particularly among the highest quality buildings in the best markets. 4) New Jersey’s labor pool is stretched to its limit. The increasing difficulty in securing labor in New Jersey will be an on-going factor for office employers. New Jersey’s status as an excellent place to live, work, and play continues to be a double-edged sword when it comes to the cost of liv- ing. Businesses want to be here but, unfortunately, the state’s high costs make it hard for employees to live in the state. This will have deep impacts on the exponential expansion of the medical service industry including hospitals and re- gional large service providers as their labor pool is particu- larly vulnerable to cost of living increases. W. Joshua Levering, SIOR (Josh) has been a commer- cial real estate broker and advisor for 25-plus years. Josh joined the NAI James E. Hanson team with the directive of adding depth to the firm’s office leasing and investment activities in New Jersey and throughout the NAI international net- work.
ment and de- velopment ac- tivity in 2019. Much of the sector’s leas- ing velocity was driven by corporations s e ek i ng t o update their
The ‘flight to quality’ and ‘right-sizing’ saw us announcing new lease commitments, both large and small, throughout the year.
businesses, the bulk came from our traditional FIRE sector (finance, insurance and real estate). In addition, we had a vast amount of activity and expansion from the medical sector including local, regional and national healthcare provid- ers and specifically hospitals, that are bringing more services
that we consider as we look ahead in 2020. 1) Investors will continue to deploy capital for both invest- ment and value add opportuni- ties in the office sector. Low interest rates will act as a catalyst for continued inter- est in the office market with banks, insurance companies
ally obsolete and outdated office properties will require renova- tions, redevelopment and other capital improvements to bring the historically older stock of office buildings up to the con- temporary standards of today’s tenants. 2) Vacancy rates will con- tinue to decline.
W. Joshua Levering
office facilities to enhance their recruitment and retainment of employees. The ‘flight to qual- ity' and ‘right-sizing’ saw us announcing new lease commit-
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