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Trading up in N.J. office market

Flight-to-quality concept is trending in the state

Technology firm Vitals upgraded to a nicer facility, but stayed in Lyndhurst.-(COURTESY RUGBY REALTY)

Tom Giannone points to one client in particular — a Princeton-area firm that services the life sciences industry — when it comes to the flight to quality in the office market.

The business has thrived and even expanded since the recession, said Giannone, a broker and managing principal with Cresa NJ. But with an uncertain economy, the firm has simply grown in place in lackluster space rather than make a long-term commitment at a high-end building.

Until now, that is.

“They’re now at the point where they’re saying, ‘We’re not looking for more space, but we’re looking to have a better image — and we think for a little bit more money than we’re paying, we can get a much better image than we have right now,’” Giannone said. “And that’s why we’re in the market with them.”

You won’t have trouble finding other like-minded tenants in New Jersey. With vacancy still high among top-tier office buildings, users are increasingly moving to upgrade their space — all while getting attractive rental rates and a wealth of options around their existing location.

That’s led to a flight to quality that several brokers say is more pronounced than at any other point since the recession.

“(At some point) companies start to take advantage of the situation,” said Richard J. Madison, a Parsippany-based broker and executive managing director with Colliers International. “It’s basically supply-and-demand economics, so now there’s a big supply of product in the market, and the people that step up are usually deriving the benefit of it.”

Researchers in Madison’s office point to absorption rates since the beginning of last year. The firm said about 2.2 million square feet of Class A space was absorbed in northern and central New Jersey from the start of 2014 through the first quarter of this year.

In contrast, the Class B market had negative absorption of 52,012 square feet during that time.

Madison said the trend has been especially evident when a tenant moves within the same submarket. In one recent deal brokered by Colliers, Paychex North America Inc. plans to vacate its existing space in Piscataway in favor of 30,000 square feet in another building in the township, where the landlord has recently started a series of upgrades.

Speaking generally, Madison said attractive rental rates can play a role in flight-to-quality moves, in which “you’re seeing a tenant now for B rents get into an A- building.”

Joshua Burd

NJBIZ Business Events