Which industries are driving N.J. office demand?

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Financial services and insurance firms are leading the way among New Jersey office users looking for space, according to a recent analysis by the brokerage Cassidy Turley.Researchers with the firm’s Chatham office found such tenants account for about 28 percent of those looking for space in the Garden State. And their search is reinforcing the trend of users seeking denser, more efficient workspaces — especially in rail-served urban markets such as the Hudson waterfront.

Charles Parmelli, a vice president and principal with Cassidy Turley, said “the relative lack of growth in other sectors” has helped the finance industry emerge as a leading driver of office demand. And as rental rates in New York City continue to rise, he said, banking and insurance firms that are on the hunt are looking for cheaper alternatives.

“It’s been an incredible ride for them,” Parmelli said, pointing to improvements in the financial sector. “And the desire to have space near or by Lower Manhattan, which originally drove the development of the towers that exist now in Jersey City, is just coming back into its second cycle.”

Asking rents in New York City averaged $68.84 per square foot in the third quarter, according to Cassidy Turley, up from $63.55 a year earlier. Downtown, rents averaged $50.66 per square foot at the end of September.

Those rates are a far cry from those on the Hudson waterfront, which averaged $37.40 in Q2, according to researchers with Cassidy Turley.

That’s not to say there will be a mass exodus across the Hudson River. Parmelli notes that many of the financial services firms in the market, such as Citigroup, are already in New Jersey. They’re simply “rethinking that strategy, and they will move toward a more dense location closer to where their sought-after employees are.”

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At 13.9 percent, technology and communications firms make up the second-largest concentration of tenants in the market, according to the analysis of Cassidy Turley research analyst Liliya Madgid.

Parmelli said that incorporates media companies, which may be better candidates for crossing over from Manhattan, given that their “revenues and business model have been changing drastically over the last several years.”

“As New York becomes a more sought-after new industry hub … media companies that have to be on a tighter budget are also kind of cutting across,” he said. “Where they traditionally had been in New York City, they can be nearby.”

As a recent example, he pointed to Forbes Media’s plan to move its headquarters from Manhattan to Jersey City’s Newport section.

For other tenants looking for space along the waterfront, Parmelli said they’d have an easier time finding large blocks. Smaller units “are starting to go away.”

“While it continues to decrease and get chipped away, there’s still a good availability of office space,” Parmelli said. “What we’re seeing — and it depends on some of the things you work on — (is) more velocity in the smaller sizes, where there seems to be even somewhat heated competition for space in the … 5,000- to 10,000-square-foot range.”

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