The office market in Midtown Manhattan is blazing hot, with asking rents at prime buildings topping $100 per sq. ft. That has sent some tenants heading for Northern New Jersey where it is possible to find rents in Class-A buildings for less than $35 per sq. ft.
Cities close to Manhattan — including Jersey City and Hoboken — have experienced the strongest demand for quality buildings, says Tom Reilly, executive vice president of Jones Lang LaSalle. In Short Hills, a small city that is primarily known for its upscale shopping mall and pricey residential areas, some leasing transactions are being completed at $40 a sq. ft., Reilly says.
The growth ofservices recently has boosted Northern New Jersey markets. In the past year, Mellon Financial Corp. and Deutsche Bank have each leased more than 400,000 sq. ft. of space in Jersey City.
The flurry of leasing activity helped lower the office vacancy rate in Northern New Jersey to 14.3% in the second quarter, down from 16.1% three years ago, according to Sitar Co./Oncor International, ain Iselin, N.J. Hudson County, which includes Jersey City and Hoboken, boasts a healthier vacancy rate of 10.3%.
As in the past, much of the New Jersey space has gone to house back-office clerical workers in brokerage, banking and insurance companies. Now some firms have also begun moving their high-level executives across the Hudson.
The Goldman Sachs Group said recently that it will develop a building next to its existing 44-story tower at 30 Hudson Street in Jersey City to house traders and other high-level employees along with back-office clerical staff. The existing tower features amenities such as a cafeteria with Latin and Asian food, and a health club with a view of the New York skyline.
Another company traveling across the river is Citco Fund Services, a hedge fund administrator, which moved most of its New York employees from Park Avenue in Midtown to 70,000 sq. ft. at 10 Harborside Plaza in Jersey City.
“Many companies are reluctant to leave New York because the Manhattan address has prestige,” says Sachiyo Asakawa, director of research for Sitar. “But the cost of staying on Park Avenue can be prohibitive.”
After the terrorist attacks of Sept. 11, 2001, about 15,000 jobs left Manhattan for temporary quarters in New Jersey, recalls James Postell, executive vice president of broker Cushman & Wakefield. Big tenants in the World Trade Center moved to Hoboken and other spots with easy Manhattan access. Since then, about 5,000 of those jobs have returned.
Despite the influx of Manhattan companies post-9/11, Northern New Jersey markets remained soft for several years following the attacks. While the financial industry stagnated, many pharmaceutical companies also announced layoffs.
Then as Wall Street began recovering in 2004 and 2005, activity also picked up in New Jersey. According to the U.S. Bureau of Labor, financial industry jobs in New Jersey peaked in 2001 at 55,200, dipped to 48,900 in 2003, and climbed up to 51,800 by July 2006.
Demand for space in New Jersey will keep growing for at least the next year, predicts Ray Sohmer, manager of CB Richard Ellis New Jersey. “The World Financial Center and other prime buildings in Manhattan are just about full,” he says. “That will push more financial companies to consider New Jersey.”