New Jersey Office Market Report (1Q2021)8 Apr 2021
Office Market Report
Availability rates rise as rental rates drop.
Office availability rates have risen 400 basis points since the first quarter of 2020 from 17.6 percent to 21.6 percent. Market rents dropped $.27 year over year to $29.38/sf. Absorption was negative for the third straight quarter.
St. Joseph’s Health agrees to take more space in Totowa
St. Joseph’s Health announced earlier this quarter that they will be leasing an additional 80,000 square feet at 169 Minnisink Road in Totowa. This recent lease brings the Paterson-based health system footprint in the built-to-suit complex to 140,000 square feet. Community Healthcare Associates, based in Bloomfield, New Jersey, is building the two-phased complex, with the first phase expected to be completed in the fourth quarter of 2021. The completion date for the second phase is expected in late 2022.
Mallinckrodt Pharmaceuticals returns to 53 Frontage Road after bankruptcy
Mallinckrodt Pharmaceuticals leased 100,000 square feet at 53 Frontage Road in Hampton. This is the Irish-based life science firm’s second stint at the Shelbourne Global-owned property. Mallinckrodt left the property in 2017 to relocate to 1405- 1425 Route 206 in Bedminster but agreed to move back in a consolidated space as a result of an agreement that emerged from the company’s bankruptcy filing.
Lone Star Funds sells 170 Park Avenue in Florham Park
Less than two years after signing biotech company Celuarity to a 17-year NNN deal, Lone Star Funds has sold 170 Park Avenue in Florham Park to JLL Income Property Trust. The three-story Class A office building, which underwent significant capital improvements, sold for $46.6 million. Lone Star purchased the property in 2015 for $28.4 million as part of a 15 multi-state purchase. This is the 85th property in JLL Income Property Trust’s portfolio, which is valued at approximately $3.5 billion.
The Birch Group acquires over 400K portfolio in Morristown
The Birch Group has added four more properties to the firm’s ever- growing portfolio. The Nanuet-based company paid $77 million for a four-property Morristown portfolio which includes: 60 Columbia Road Bldg. A, 60 Columbia Road Bldg. B, 100 Southgate Parkway and 1200 Mount Kemble Avenue. The Birch Group is looking to make additional renovations to the 407,635 square foot portfolio beyond $6.7 million made by the seller, Lincoln Equities Group.
Mack-Cali continues suburban sell-off
Mack-Cali continued their selloff with the sale of its Metro Park portfolio (333 & 343 Thornall Street in Edison and 99 &101 Wood Avenue South in Iselin) to Liberty Properties for $254 million. At the time of the sale, the portfolio was 90 percent leased. This is Liberty Properties’ second large purchase in Metro Park, the New York-based real estate investment firm purchased 194 Wood Avenue South last year.
Mack-Cali also sold 100 Overlook Center in Princeton. The Jersey City REIT sold the 158,180, four-story office property for $38 million to Cali Overlook Realty. The property was 91 percent leased at the time of sale and includes tenants such as Trustees of Princeton University, Regus and Certara USA.
Topic Spotlight- Medical office: Just what the doctor ordered in an uncertain office market
As the pandemic took hold during the first quarter of 2020, most people began a lockdown and rarely left their homes. This started a revolution of people working from home, shopping from home and seeing their doctors from home. As a result, there was a boom in telemedicine. While telemedicine existed prior to the pandemic, it was rarely used by patients and their doctors. To illustrate the incredible growth of this service, data from the University of Michigan healthcare system shows that in the months before the pandemic, they conducted around 400 telemedicine visits a month. In April 2020, that number rose to around 30,000, and by the end of May, they conducted around 40,000 visits.
This unbelievable phenomenon was aided by some changes in federal regulation, including the relaxation of the state licensing requirements, the equipment used, privacy concerns and how healthcare services are charged and reimbursed. As this trend continued throughout the pandemic, many experts believed that telemedicine would be here to stay even after the pandemic and that medical office building owners were going to suffer as a result. But recent leasing activity in New Jersey seems to dispel that hypothesis, at least for the time being.
Over the past few months, numerous health systems have signed large leases to expand their presence in the Garden State. Summit Medical Group agreed to lease 40,000 square feet at Seymour Redevelopment at the Wellmont Theater. The mixed- development project owned by Ironstate Development Company will include 200 multifamily units as well as retail and office.
Atlantic Health also leased new space. The Morristown-based health system opened a 28,000-square-foot urgent care facility at 142 Central Avenue in Clark. The new facility was the result of a $6 million renovation.
Englewood Health also joined the fray by making their largest investment in Hudson County. The Bergen County-based health system leased 75,000 square feet at Journal Square. They are hoping to capitalize on the influx of residents to the area due to numerous multifamily projects taking place in the area. They are expecting their three-floor space to include urgent care and primary care as well as some specialty services.
As we mentioned earlier in the report, St. Joseph’s Health announced earlier in the first quarter that they will be leasing an additional 80,000 square feet at 169 Minnisink Road in Totowa. Once both phases of this project are complete, the Paterson- based health system will occupy around 140,000 square feet.
The final deal we will highlight displaying the strong push by medical systems to continue to occupy large blocks of space is Cooper University Health Care’s lease of 165,000 square feet in the Moorestown Mall. The southern New Jersey/Philadelphia health system will take over space formally occupied by Sears and will open a specialty care facility. While this deal did not occur in northern New Jersey, we thought it was important to highlight as this might be the beginning of a trend that we see throughout the state, with many malls struggling and health systems need for large blocks of space.
If these past few months have been an indication, even with changes occurring to the way healthcare can be provided, the medical office market will remain healthy.