JLL’s 2016 Skyline Report focuses on the top-tier office market, looking at some of the most iconic and high-rent properties within CBDs and urban cores. This proprietary digital research piece provides insights on office supply, demand, rents and investment in 1,175 Skyline buildings across 52 markets in the United States and Canada.
Within NJ, the Hudson Waterfront and Newark Skylines continued to demonstrate success. From a fundamentals perspectives, these top-tier office segments posted significant lower vacancy and higher rents in relative terms to the overall NJ market
The report focuses on five key trends. Let’s explore how these trends are relevant to New Jersey.
- Gone today, here tomorrow
Many markets are expecting to enter a new era of availability with the delivery of 34.4 million square feet of Skyline buildings and 62.4 million square feet of non-Skyline developments. This will inevitably begin to shift the balance from landlord-favorable conditions and ease the leasing environment for tenants.
Newark Skyline: After climbing to 18.3 percent in 2014 in response to Prudential Insurance shuffling its space holdings at Gateway Center, the Newark Skyline vacancy rate had since trended lower and was below 18.0 percent by early 2016. While Prudential moved into its new 740,000-square-foot building near Military Park last year, internal growth also prompted the Newark-based insurance services giant to remain in approximately 400,000 square feet at Gateway Center, which contributed to the lower vacancy rate. New leases by Connell Foley, DB Schenker, New Jersey Transit and Yang Ming also exerted downward pressures on the Newark Skyline vacancy rate.
2. More, more, more
The country’s fastest growing markets are nearing the top of the market and tenants are feeling the pressure. In the short term,premium pricing for the coveted Skyline buildings will be exacerbated as new Trophy buildings are delivered, forcing some tenants to look to lower cost options or different markets altogether.
Hudson Waterfront Skyline: Proximity to Manhattan and competitive rental rates for high-end Class A space has historically attracted office occupiers to the Waterfront Skyline. New Jersey’s aggressive economic incentives added another enticement to companies as evidenced by recent leasing activity in this market. Among the largest transactions completed was JPMorgan Chase & Company’s leasing of 400,000 square feet at 545 Washington Boulevard in Jersey City. JPMorgan received a 10-year !187.7 million Grow New Jersey award to expand its technology and operations hub. Brown Brothers Harriman and New York Life Insurance also tapped incentives to relocate or expand their operations in this market during the past year. The Waterfront Skyline vacancy rate had fallen to 12.5 percent by early 2016, which was the lowest level since 2012.
3. Ready, steady, go
Though the economy is on steady ground and expected to remain stable over the next 18-24 months, it’s the broader global economy that continues to weigh on the minds of investors. Combined with the concern over the trajectory of the technology industry in real estate expansion; investors have reason to give pause.
Newark Skyline: Several development projects are helping to revitalize Newark’s downtown area and position this market for future growth. Ground was broken on the $174.0 million restoration of the Hahne & Company building which involved rehabilitating and converting the former department store into apartments, street-level retail space and office space. The new Rutgers University arts and cultural center, National City Banks HQ and Whole Goods Market will anchor a large portion of the space. In addition, the former American Insurance Company headquarters at 15 Washington Street is being converted to student housing for Rutgers University.
4. On the road
High barriers to entry in primary markets, resulting from cost and competition may mean Skyline assets become harder to acquire,if at all. Peak pricing and scarce investment opportunities will continue to lead investors to hot secondary markets where rent growth is still achievable and tenant demand persists.
Hudson Waterfront Skyline: While financial services firms initially populated the Waterfront Skyline, other business sectors will continue to establish their footprints in this strategically located market. E-commerce startup Jet.com recently doubled its headquarters to 80,000 square feet, while Rubbermaid/Newell Brands leased nearly 100,000 square feet for its operations. Both deals were completed at Waterfront Corporate Center III in Hoboken, bringing the 520.000-square-foot building to full occupancy.
5. What have you done for me lately?
Despite the rise in popularity of older creative buildings and fringe markets, Skyline assets still have lasting power. Owners must keep pace with the changing times to remain competitive, particularly in Skyline buildings with below-average occupancy. By investing in common areas, building systems and office space, owners can turn lackluster buildings into a substantial payoff.
Hudson Waterfront Skyline: With its newer high-end Class A office buildings compared to most of the inventory in New Jersey’s suburban markets, the Waterfront Skyline will continue to attract tenants seeking competitive space with mass transit connectivity to Manhattan and the Tri-State region.
Newark Skyline: Landlords in the Newark Skyline are expected to continue to invest in capital investment programs to maintain their assets’ competitive position in the marketplace. These investments will pay dividends as quality Class A office product remains in high demand by today’s users.
For more on the skyline tool, visit the full site here.