Q2 2010 OFFICE NORTHERN & LEASING MARKET REPORT Office Market Continues to Bump Along the Bottom As the first half of 2010 comes to a close, the mood varies among real estate professionals in the northern and central New Jersey office market. The market has stabilized somewhat and although the sense is that it may have bottomed out, we have seemingly bumped along the bottom for quite some time. Flight to quality exists, with many tenants looking to upgrade and take advantage of favorable conditions. Regardless, the general perception among many tenants is that the market is not improving, which is creating hesitancy. As a result, there is very little absorption in the market with most leasing confined to renewals and lateral moves. As for investors, there is money available for those who have a good record and credit history. The Federal Reserve has kept interest rates low and institutional investors are more confident and have regrouped with cash to invest. There are also new funds that are in a position to buy, albeit selectively. Rising slightly more than a half point to 24.48% from 23.96%, the overall availability rate in northern and central New Jersey experienced its highest quarterly increase since 3Q09. In addition, the amount of availability has increased from 22.59% since 2Q09. As some larger available subleases have expired, much of the space that landlords had been competing with has now shifted to direct availability. As of 2Q10, only 15.7% of space is available on a sublease basis, down from 20.97% a year ago. This trend will likely continue. As tenants debate staying in place versus moving, landlords are increasingly willing to make deals well in advance of lease expirations, prompting some tenants to act on early renewals. In this market, costs of relocation can kill deals. Therefore, existing landlords benefit from a tenant continued on page 6 MARKET INDICATORS 1Q10 VACANCY NET ABSORPTION CONSTRUCTION RENTAL RATE 2Q10 UNEMPLOYMENT RATES - NEW JERSEY VS. UNITED STATES 10. 10.4% 10.3% 10.2% 10.1% 10. 9.9% 9.8% 9.7% 9.6% 9. 9.4% 9.3% 9.2% 9.1% 9. 8.9% 8.8% 8.7% 8.6% 8. 8.4% 8.3% 8.2% 8.1% 8. 7.9% 7.8% 7.7% 7.6% NJ U.S. Recent actions to control business expenses in NJ may be setting the stage for increased hiring later in the year. NEW JERSEY OVERALL 3 2 2 1 7. May-09 Jun-09 Jul-09 Aug-09 Sep-09 Oct-09 Nov-09 Dec-09 Jan-10 Feb-10 Mar-10 Apr-10 May-10 WWW.COLLIERS.COM/PARSIPPANYPRINCETON
Availability Rate: 22.97% MORRIS Net Absorption: -563,999 Square Feet PASSAIC.03 + Tenant Electric ESSEX BERGEN HUDSON The overall availability rate in northern New Jersey continues to reach historic highs as four of five counties experienced quarterly increases. As of 2Q10, 22.97% of office space remained available, an increase from 22.1 the previous quarter and 21.38% a year ago. Due to expiring lease terms, the amount of sublease space as a percentage of all available space decreased for the second consecutive quarter to 16.43% from 19.92%. Asking rents averaged.03 per square foot gross, plus tenant electric, for the quarter, compared to.23 the past quarter and.02 a year ago. While smaller leases accounted for much of the leasing during the quarter, three deals signed for greater than 50,000 square feet helped stabilize the market. The biggest news came when BASF signed a 15 year lease and broke ground on its planned 325,000 square foot North American headquarters on Campus Drive in Florham Park. BASF aims to have the new facility LEED certified and expects to move in 2012. The new facility is expected to house 1,100 workers, the majority from its current Florham Park and Rockaway Township facilities. Also in Morris County, Watson Pharmaceuticals Inc. is expanding in Parsippany, taking 148,700 square feet, and will ultimately lead to approximately 500 employees working in Parsippany, including 300 new hires. In Bergen County, Medco Health Solutions subleased a 142,500 building from Teva Pharmaceuticals at 225 Summit Ave in Montvale. Other deals include Fiber Media, in Hudson County, who leased 32,610 square feet in Secaucus, a space they plan to use as its data center hub. In Essex County, 1515 Broad Street in Bloomfield led activity as ITT Space Systems expanded by 30,983 square feet and now occupies more than 55,000 square feet, while New Jersey Urology, LLC, expanded by 6,577 square feet and now occupies more than 24,000 square feet. Passaic County experienced minimal leasing activity during the quarter. 3 2 2 1 While smaller leases accounted for much of the leasing activity during the quarter, three deals signed for greater than 50,000 square feet helped stabilze the market. P. 2 COLLIERS INTERNATIONAL
BERGEN COUNTY 3 2 2 1 $27 BERGEN COUNTY HIGHLIGHTS > Medco Health Solutions subleased 142,500 square feet at 225 Summit Avenue in Montvale. > Black & Veatch Corporation expanded into 10,846 square feet at 45 Eisenhower Drive in Paramus. > New Jersey Urology, LLC leased 10,379 square feet at 160 Pehle Avenue in Saddle Brook. > Nationwide leased 8,998 square feet at 117 West Century Drive in Paramus. > XIBI subleased 5,989 square feet at 777 Terrace Avenue in Hasbrouck Heights. ESSEX COUNTY HIGHLIGHTS ESSEX COUNTY Availability Rate vs. > ITT Space Systems expanded by 30,983 square feet and New Jersey Prostate Cancer Center LLC has expanded by 6,577 square feet at 1515 Broad Street in Bloomfield. 2 2 > Randa Luggage leased 26,000 square feet at 200 Broadacres Drive in Bloomfield. 1 > Federal Reserve Bank leased 22,000 square feet at One Riverfront Center in Newark. > Acorn Financial Services leased 20,000 square feet at Eisenhower Corporate Campus in Livingston. > Nomadic Display leased 12,185 square feet at 4-6 Just Road in Fairfield. HUDSON COUNTY 2 1 $27 > ARMDS leased 8,800 square feet at 400 Broadacres Drive in Bloomfield. HUDSON COUNTY HIGHLIGHTS > Fiber Media leased 32,610 square feet at 200 Meadowlands Parkway in Secaucus. > Citrix Systems subleased 21,000 square feet at 499 Washington Blvd in Jersey City. > Manhattan Physician leased 21,000 square feet at 499 Washington Blvd in Jersey City. > Intrasphere Technologies leased 20,000 square feet at Harborside Plaza 10 in Jersey City. MORRIS COUNTY Availability Rate vs. 3 3 2 2 1 3 2 2 1 PASSAIC COUNTY MORRIS COUNTY HIGHLIGHTS > BASF Corporation agreed to lease 325,000 square feet of new construction at The Green at Florham Park. > Watson Pharmaceutical leased 148,700 square feet at 400 Interpace Parkway, Bldgs A & D in Parsippany. > The Panalpina Group leased 33,000 square feet at 67 Park Place East in Morristown. > Brown & Brown leased 17,000 square feet at 30A Vreeland Road in Florham Park. > Fresenius Medical Care leased 10,786 square feet at 55 Madison Avenue in Morristown. > TEK Systems leased 9,100 square feet at 1 Sylvan way in Parsippany. > Weinberger Law Group, LLC leased 5,265 square feet at 119 Cherry Hill Road in Parsippany. PASSAIC COUNTY HIGHLIGHTS > Community Options leased 7,422 square feet at 40 Commerce Way in Totowa. $19 $18 COLLIERS INTERNATIONAL P. 3
Availability Rate: 26.68% SOMERSET MERCER Net Absorption: -37,802 Square Feet.15 + Tenant Electric UNION MIDDLESEX MONMOUTH The Central New Jersey office market stabilized during 2Q10. The overall availability rate was 26.68% for the quarter, virtually unchanged from 26.62% the previous quarter, but much higher than its rate of 24.38% a year ago. Asking rents continue to decline, averaging.15 per square foot gross, plus tenant electric, compared to.49 the past quarter and.68 a year ago, representing a 6.2 percent annual decrease. The Princeton market, which encompasses sections of Middlesex and Mercer Counties, experienced its highest leasing velocity since 3Q09. BlackRock Financial Management Inc. signed the largest office lease in Central New Jersey during the quarter. After considering relocating to Trenton, New Brunswick and Philadelphia, the investment firm will move from 800 Scudders Mill Road in Plainsboro to 141,375 square feet at University Square in Princeton. Also in the Princeton market, engineering and construction firm, Parsons Brinkerhoff, leased 45,756 square feet at Princeton Pike Corporate Center in Lawrenceville, while Integra Life Sciences took 22,965 square feet in Plainsboro. taken by subtenants, the terms on much of that space have expired and reverted back to the landlords, and now subleases represent only 18. of overall availability. One of the newest subtenants to the region is WPP, a world leader in advertising and marketing services, who subleased 35,422 square feet in Warren from Chubb Group. Tenants signing new deals in Somerset County included Fireman s Fund, Household Finances and Asurion, all leases in the 10,000-15,000 square foot range. Monmouth and Union, which are the smallest of the five Central New Jersey counties in terms of total inventory, experienced minimal office leasing velocity during the quarter. 3 2 2 1 From 2007 to 2009, more than 3 of space available in Somerset County was sublease, much of it in office buildings along the Route 78 Corridor. However, while some space has been The overall availability rate was 26.68% for the quarter, virtually unchanged from 26.62% the previous quarter, but much higher than its rate of 24.38% a year ago. P. 4 COLLIERS INTERNATIONAL
MERCER COUNTY 2 2 1 $31 $30 $29 $28 $27 MERCER COUNTY HIGHLIGHTS > Blackrock leased 141,375 square feet at 1 University Square in Princeton. > Parsons Brinkerhoff leased 45,756 square feet at 2000 Lenox Drive in Lawrenceville. > Affiliated Computer Systems, Inc. renewed their lease for 43,882 square feet at 100 American Metro Blvd in Hamilton. > Morgan Lewis Bockius renewed their lease for 32,000 square feet at 502 Carnegie Center in Princeton. > Robert Wood Johnson leased 27,000 square feet at 3 Hamilton Health Place in Hamilton. MIDDLESEX COUNTY 3 3 2 2 1 > Alphion Corporation renewed their lease for 19,247 square feet at 196 Princeton-Hightstown Road in West Windsor. MIDDLESEX COUNTY HIGHLIGHTS > CSAV renewed their lease for 24,000 square feet at 99 Wood Avenue South in Iselin. > Integra Lifesciences Corporation leased 22,965 square feet at 103 Morgan Lane in Plainsboro. > Rocheux International expanded their lease into 13,393 square feet at 220 Centennial Avenue in Piscataway. MONMOUTH COUNTY 2 2 1 $19 > Compunnel Software Group, Inc. leased 4,984 square feet at 103 Morgan Lane in Plainsboro. > Rotenberg, Meril, Solomon, Bertiger & Guttilla leased 2,600 square feet at 90 Woodbridge Center Drive in Woodbridge. > Bank of America, SNI Companies and Unitiv, Inc. all signed leases at Woodbridge Corporate Plaza in Iselin. MONMOUTH COUNTY HIGHLIGHTS $18 > Liberty Mutual Insurance Company leased 11,881 square feet at 303 W Main Street in Freehold. SOMERSET COUNTY 4 3 3 SOMERSET COUNTY HIGHLIGHTS > TNS subleased from Chubb 35,422 square feet at 3 Mountainview in Warren. > Fireman s Fund leased 15,000 square feet at 150 Allen Road in Basking Ridge. 2 2 > Household Finance leased 14,650 square feet at 200 Somerset Corporate Blvd in Bridgewater. 1 > Allergan extended and expanded their lease into 10,492 square feet at 1 Crossroads in Bedminster. > Asurion leased 10,020 square feet at 500 Somerset Corporate Blvd in Bridgewater. UNION COUNTY Availability Rate vs. 2 > Bevan, Mosca, Giuditta and Zarillo, P.C. subleased 9,085 square feet at 222 Mount Airy Road in Basking Ridge. 2 UNION COUNTY HIGHLIGHTS 1 > Vaughan Ltd renewed their lease for 14,000 square feet at 207 Sheffield Street in Mountainside. COLLIERS INTERNATIONAL P. 5
a cost to move (moving expenses can equal as much as a year s rent). To lure and retain tenants, landlords continue to lower rents and offer more concessions. As an average, the asking rent in northern and central New Jersey decreased to.08 per square foot gross, plus tenant electric, from.34 the past quarter and.32 a year ago. When it was announced in December 2008 that the nation was in a recession, doom was the feeling among market participants. However, since Federal Reserve Chairman, Ben Bernanke, announced recently that the recession was stemmed, economic conditions began to improve. In addition, business association leaders are optimistic that Governor Christie s new State budget can be balanced without broad tax increases. According to the June 2010 small-business employment index from Intuit Inc., U.S. businesses with fewer than 20 employees are continuing to hire, which extends an upward trend that began in mid-2009. In addition, recent actions by NJ Legislature to control business expenses seem to be setting the stage for increased hiring later in the year, something not envisioned in 2008 and 2009. If the recession is in fact over, there is hope for commercial real estate as it traditionally lags 12-18 months behind improving economic conditions. The Manhattan office market is experiencing increased leasing velocity, sometimes a positive sign for New Jersey. While it is still a wait and see if we have reached the bottom, these factors, coupled with a Governor who appears more business friendly, provide some optimism for the second half of this year and into 2011. 480 offices in 61 countries on 6 continents United States: 135 Canada: 39 Latin America: 17 Asia Pacific: 194 EMEA: 85 $1.9 billion in annual revenue 2.4 million square feet under management Over 15,000 professionals The information contained herein has been obtained from sources deemed reliable. While every reasonable effort has been made to ensure its accuracy, we cannot guarantee it. No responsibility is assumed for any inaccuracies. Readers are encouraged to consult their professional advisors prior to acting on any of the material contained in this report. UPDATE 2Q 09 3Q 09 4Q 09 1Q10 2Q10 Last Year Last Qtr Availability Rate (%) Asking Rental Rate Absorption (Qtr) Total 21.4% 22.8% 22.8% 22.1% 23. 1.6 0.8 pp Direct 16.7% 18. 18. 17.7% 19.2% 2.5 1.4 pp Sublease 4.7% 4.7% 4.7% 4.4% 3.8% -0.9-0.6 pp Total.02.68.45.23.03-4.1% -0.9% Direct.73.33.13.95.63-4.4% -1.3% Sublease.97.85.49.00.03-4. 0.2% Total -1,646,154-1,336,670-42,210 489,113-563,999 65.7% 215.3% Availability Rate (%) Total 24.4% 25.6% 25. 26.6% 26.7% 2.3 0.1 pp Direct 19.6% 20.7% 20. 21.7% 22.7% 3.1 1.0 pp Sublease 4.8% 4.9% 5. 4.9% 3.9% -0.8-1.0 pp Asking Rental Rate Total.68.15.60.49.15-6.2% -1.4% Direct.36.06.43.08.59-7. -2. Sublease.32.22 $18.95 $19.75 $19.96-1.8% 1.1% Absorption (Qtr) Total -361,982-902,062-24,440-685,754-37,802 89.6% 94. NORTHERN & Availability Rate (%) Total 22.6% 23.9% 23.9% 24. 24. 1.9 0.5 pp Direct 17.9% 19.1% 19.1% 19.3% 20.6% 2.8 1.3 pp Sublease 4.7% 4.8% 4.8% 4.6% 3.8% -0.9-0.8 pp Asking Rental Rate Total.32.90.51.34.08-5.1% -1.1% Direct.03.65.26.01.61-5.7% -1.7% Sublease.72.62 $19.93 $19.91.01-3.4% 0. Absorption (Qtr) Total -2,008,136-2,238,732-66,650-196,641-601,801 70. -206. FOR MORE INFORMATION Matthew Dolly Senior Managing Director TEL +1 973 299 3032 EMAIL matthew.dolly@colliers.com 119 Cherry Hill Road Parsippany, NJ 07054 TEL +1 973 299 3000 FAX +1 973 299 3001 100 Overlook Center Princeton, NJ 08540 TEL +1 609 269 1111 Accelerating success. P. 6 COLLIERS INTERNATIONAL WWW.COLLIERS.COM/PARSIPPANYPRINCETON