New Jersey’s Hudson Waterfront, once touted as the budget alternative to Lower Manhattan rents, has lagged in leasing activity, but optimists say the area has a solid future.
The Garden State remains highly competitive when it comes to enticing companies that might opt for space across the Hudson River. Jersey City, in particular, has seen rapid waterfront development and has dangled plenty of tax incentives to position itself as an attractive commercial real estate alternative to Manhattan.
For now, New York companies aren’t biting, and big financial service firms are looking to unload prior space commitments.
In 2004, vacancy rates in Jersey City, Weekhawken and Hoboken increased from 14.2 percent to 15.2 percent, according to Cushman & Wakefield of New Jersey. Class A vacancies for the three cities across from New York hit 16.7 percent, considerably higher than Manhattan vacancy rates.
The three cities account for 16,744,094 square feet of Class A office space, and more than 2 million square feet of sublease space remain available in “Wall Street West” as companies such as Lehman Brothers try to unload space and focus on Manhattan.
Much of the spike in availability comes from UBS PaineWebber, which was supposed to occupy the Lefrak Organization’s new Newport Office Center VII. The company now wants to sublet more than 1 million square feet of space. It’s a far cry from 2000, when overall vacancy rates hit a record low of 1 percent. According to Cushman & Wakefield’s latest report, “overall vacancy rates are beginning to moderate despite being at their highest levels since 1993.”
With financial services firms gearing up for renewed hiring in anticipation of increased economic growth, Jersey believers aren’t hard to find.
“I think New Jersey is still pretty competitive and especially Jersey City because it’s all new, it’s got a great transportation system, it’s got shopping,” says Linda Tanaka, director of research for Sitar Company ONCOR International, a commercial brokerage firm. “I think for some people Manhattan still is seen as a target.”
Still, the bottom line is the bottom line. Tanaka says space runs $25.05 per square foot in Hudson County and approximately $30.00 for Class A space. Some waterfront buildings in Jersey City command rates of $40.00 per square foot, still a deal relative to spiraling Midtown rents, where overall average asking prices stood at $45.98 at the end of the year but were much higher for Class A space, according to Cushman & Wakefield.
Mack-Cali Realty Corporation, a dominant commercial player in Jersey City, cast a vote of confidence in New Jersey’s “Gold Coast” when it announced a deal for the state’s second-tallest building, 101 Hudson Street, for $329 million.
The 42-story building is 97 percent leased through 2007 to tenants that include Merrill Lynch, AIG, and Lehman Brothers. Mack-Cali is expected to seal the deal early this year, which would give the Cranford-based real estate investment trust ownership of 25 percent of the city’s waterfront Class A office space.
New Jersey is no longer a punch line for jokes about exile across the Hudson, but some companies believe corporate prestige requires an official address in Manhattan even if lower-level staff is discreetly ensconced across the river.
Goldman Sachs, which constructed the Garden State’s tallest skyscraper, only occupies part of its 1.36 million square feet at 30 Hudson Street. The financial powerhouse plans to build a new headquarters in Battery Park City, but gives no indication that it will abandon its gleaming Gold Coast tower.
“Many companies feel it’s perhaps important to have a front door in Midtown but the cost of occupancy and the availability of a well-educated labor force has given pause to many companies to execute leases on the Jersey City side,” explains Mitchell Hersh, Mack-Cali’s president and CEO.
In early January, Mack-Cali announced that Morgan Stanley extended its 306,170-square-foot lease at Harborside Plaza 2 through 2013. Pharmaceutical company Forest Laboratories added more than 36,000 feet to its 180,072-square-foot space at Harborside Plaza 5. Amdocs, the software provider, also signed a 10-year lease there, for 18,655 square feet.
“At this juncture it’s absolutely not all financial services and that’s a very good thing,” says Hersh. “I’m not writing New York off. It’s still the financial capital of the world, but Jersey City also has a very high level of attractiveness.”
The rest of Bergen County and neighboring Monmouth County are, according to Tanaka, “very hot.” With average rents of $22.58 per square foot, Monmouth has one of the lowest vacancy rates in the state. In Essex County, Newark seeks to cast itself as a destination.
But Somerset County is having trouble filling its abundance of “old-fashioned headquarters space” like the former AT& offices. The latest Sitar-Rutgers Regional Report put Somerset’s vacancy rate at 40 percent.
That is expected to drop when Citigroup moves 1,600 back-office employees from New York City into Lucent’s former corporate campus in Warren Township.
According to a recent Newmark Office Market Report, “New Jersey’s real estate market was defined in the third quarter” by this 800,000-square-foot lease, “one of the biggest office leases in New Jersey in years.”
The company says tax breaks such as New Jersey’s Business Employment Incentive Program (BEIP) have proved key to luring business across the Hudson.
“There hasn’t been over-construction,” Tanaka points out. “There’s been constraint in building office space so once the economy picks up, the space should fill up pretty readily.”
The Real Deal
