Jones Lang LaSalle
The Coming Garden State Office Boom
By NJBIZ Staff, Shankar P. - 4/17/2006
Jersey City - New Jersey landlords look for the next boom in the state’s office market to come from the spillover from fast filling-up Manhattan. The demand for new Manhattan office space could total 28 million sq. ft. over the next 10 years, according to a study by Moody’s Economy.com, but new construction will fall short by nearly 10 million sq. ft.
Manhattan will “soon begin to feel a shortage of modern office buildings, and the supply of viable development sites will be inadequate,” adds a report from CB Richard Ellis, a real estate services firm. The resulting scarcity “will cause a dramatic increase in the cost of doing business in New York, and a significant loss of business to competing markets.”
This could bring a third wave of demand from New York City to New Jersey, which added the back offices of financial services giants like Goldman Sachs and Merrill Lynch in the late 1990s and experienced a brief second wave of relocations after 9/11.
A new round of moves would be a boon to landlords in the Garden State, where the office vacancy rate averages 18%, according to figures compiled by Cushman & Wakefield. This compares with 8.4% in Manhattan and 6% to 7% in the Midtown area, which represents virtually full occupancy.
But New York City’s limited Class A office space and rents that average $43.20 a sq. ft.—vs. an average of $24.25 in New Jersey and $30 in Jersey City—are starting to turn away prospects and tenants with leases up for renewal.
“Today we are seeing [financial] companies migrating work forces out of not only Midtown but also Lower Manhattan so they can obtain a lower cost of occupancy and a reliable work force that can live in an affordable way,” says Mitchell Hersh, CEO of Cranford-based Mack-Cali Realty, the largest office landlord in Jersey City.
Among those moving to New Jersey has been Citco Funding Service, a hedge-fund administrator that in February signed a 15-year, 70,000-sq.-ft. lease valued at $23 million for offices in Mack-Cali’s Harborside Plaza 10 in Jersey City. Citco plans to relocate 300 workers from midtown Manhattan to the site this summer and add another 200 staffers.
The firm is following in the footsteps of Manhattan-based Moody’s Investors Service, which last June expanded its presence from 44,000 sq. ft. to 80,000 sq. ft. at Harborside Financial Center Plaza 5 in Jersey City, another Mack-Cali property.
Helping to spur such moves are the hordes of New Jersey residents who commute to New York City offices each day. Some 250,000 New Jerseyans cross the Hudson to their jobs, according to the Federal Reserve Bank of New York. That represents some 18% of the Manhattan work force.
“A lot of companies are doing [zip code] analyses of their employees’ [residences] and finding that many come from New Jersey,” says David Stifelman, senior director at real estate services firm Cushman & Wakefield in East Rutherford.
Stifelman is handling inquiries from a half-dozen Manhattan companies looking for office space in Jersey City. He says three prospects have each made “serious proposals” for leases on 30,000 sq. ft. They include a financial services firm that is looking for a headquarters office for more than 100 employees.
Further causing companies to look beyond Manhattan are projected increases in rent. Over the next 10 years, some 500 Midtown office tenants will face lease renewals, according to Cushman & Wakefield. In many cases, the firm says, landlords will seek to extract rent increases of 60%.
Jersey City’s status as an Urban Enterprise Zone (UEZ) gives it cost advantages over Manhattan in addition to cheaper rents. The UEZ designation enables tenants to save on sales taxes and electric power, among other benefits. Such incentives “make Jersey City 30%-40% cheaper to operate from,” Stifelman says.
“Some of the larger transactions in the past six to 18 months could have gone to downtown Manhattan but came to Jersey City,” he adds. For example, “Société Générale and Mellon Financial Services came from Midtown and took up space in Newport Office Center 7.”
Hersh says Lower Manhattan suffers from “a lot of instability and uncertainty” over what will be developed there. Delays in the construction of the Freedom Tower on the World Trade Center site have not helped.
“If you’re leading a company, the last thing you want to deal with is uncertainty, whether it be uncertainty in the markets or uncertainty in terms of being able to satisfy your space needs as you grow your company,” says Hersh. “Coupled with that, whatever they choose to build there, it’s going to experience many years of difficult logistics due to the heavy construction work.”
Meanwhile, “We are seeing companies factoring into their occupancy analysis the concept of decentralization off the island of Manhattan,” says Patrick Murphy, executive managing director for the New York Tri-State Region of CB Richard Ellis. As a result, “some are moving operations to Hoboken and Jersey City.”
E-mail to shankarp@njbiz.com
The Coming Garden State Office Boom
By NJBIZ Staff, Shankar P. - 4/17/2006
Jersey City - New Jersey landlords look for the next boom in the state’s office market to come from the spillover from fast filling-up Manhattan. The demand for new Manhattan office space could total 28 million sq. ft. over the next 10 years, according to a study by Moody’s Economy.com, but new construction will fall short by nearly 10 million sq. ft.
Manhattan will “soon begin to feel a shortage of modern office buildings, and the supply of viable development sites will be inadequate,” adds a report from CB Richard Ellis, a real estate services firm. The resulting scarcity “will cause a dramatic increase in the cost of doing business in New York, and a significant loss of business to competing markets.”
This could bring a third wave of demand from New York City to New Jersey, which added the back offices of financial services giants like Goldman Sachs and Merrill Lynch in the late 1990s and experienced a brief second wave of relocations after 9/11.
A new round of moves would be a boon to landlords in the Garden State, where the office vacancy rate averages 18%, according to figures compiled by Cushman & Wakefield. This compares with 8.4% in Manhattan and 6% to 7% in the Midtown area, which represents virtually full occupancy.
But New York City’s limited Class A office space and rents that average $43.20 a sq. ft.—vs. an average of $24.25 in New Jersey and $30 in Jersey City—are starting to turn away prospects and tenants with leases up for renewal.
“Today we are seeing [financial] companies migrating work forces out of not only Midtown but also Lower Manhattan so they can obtain a lower cost of occupancy and a reliable work force that can live in an affordable way,” says Mitchell Hersh, CEO of Cranford-based Mack-Cali Realty, the largest office landlord in Jersey City.
Among those moving to New Jersey has been Citco Funding Service, a hedge-fund administrator that in February signed a 15-year, 70,000-sq.-ft. lease valued at $23 million for offices in Mack-Cali’s Harborside Plaza 10 in Jersey City. Citco plans to relocate 300 workers from midtown Manhattan to the site this summer and add another 200 staffers.
The firm is following in the footsteps of Manhattan-based Moody’s Investors Service, which last June expanded its presence from 44,000 sq. ft. to 80,000 sq. ft. at Harborside Financial Center Plaza 5 in Jersey City, another Mack-Cali property.
Helping to spur such moves are the hordes of New Jersey residents who commute to New York City offices each day. Some 250,000 New Jerseyans cross the Hudson to their jobs, according to the Federal Reserve Bank of New York. That represents some 18% of the Manhattan work force.
“A lot of companies are doing [zip code] analyses of their employees’ [residences] and finding that many come from New Jersey,” says David Stifelman, senior director at real estate services firm Cushman & Wakefield in East Rutherford.
Stifelman is handling inquiries from a half-dozen Manhattan companies looking for office space in Jersey City. He says three prospects have each made “serious proposals” for leases on 30,000 sq. ft. They include a financial services firm that is looking for a headquarters office for more than 100 employees.
Further causing companies to look beyond Manhattan are projected increases in rent. Over the next 10 years, some 500 Midtown office tenants will face lease renewals, according to Cushman & Wakefield. In many cases, the firm says, landlords will seek to extract rent increases of 60%.
Jersey City’s status as an Urban Enterprise Zone (UEZ) gives it cost advantages over Manhattan in addition to cheaper rents. The UEZ designation enables tenants to save on sales taxes and electric power, among other benefits. Such incentives “make Jersey City 30%-40% cheaper to operate from,” Stifelman says.
“Some of the larger transactions in the past six to 18 months could have gone to downtown Manhattan but came to Jersey City,” he adds. For example, “Société Générale and Mellon Financial Services came from Midtown and took up space in Newport Office Center 7.”
Hersh says Lower Manhattan suffers from “a lot of instability and uncertainty” over what will be developed there. Delays in the construction of the Freedom Tower on the World Trade Center site have not helped.
“If you’re leading a company, the last thing you want to deal with is uncertainty, whether it be uncertainty in the markets or uncertainty in terms of being able to satisfy your space needs as you grow your company,” says Hersh. “Coupled with that, whatever they choose to build there, it’s going to experience many years of difficult logistics due to the heavy construction work.”
Meanwhile, “We are seeing companies factoring into their occupancy analysis the concept of decentralization off the island of Manhattan,” says Patrick Murphy, executive managing director for the New York Tri-State Region of CB Richard Ellis. As a result, “some are moving operations to Hoboken and Jersey City.”
E-mail to shankarp@njbiz.com
posted by Jones Lang LaSalle NJ News Blog at 12:27 PM
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