In last month’s newsletter we pointed out how New Jersey office tenants have apparently transitioned into two camps.  

The first group comprises the more stable companies that are once again looking to secure long-term leases in spite of the high cost of new construction.  The second group are those companies that are unwilling or unable to make long-term lease commitments. These companies needing short term leases are forced to fit within existing spaces where Landlords are unable to amortize layout changes or revisions.  All of this makes finding space or even renewing leases quite a bit more challenging.

Readers of this newsletter are aware that the cost of constructing office space in New Jersey has more than doubled over the last decade. The result is that for those tenants seeking turnkey transactions in 2025, those deals where the Landlord will fully build out the space, the cost of the buildout is today around $100 per square foot.  That means that Landlords now need a full ten-year lease term in which to fully amortize the improvements.  Only the stable companies are able to make a ten-year commitment.

There are, of course, many reasons why companies may not be able to make long-term leasing commitments.  For example, companies with growing headcounts will find that it is extremely difficult with any degree of certainty to predict long-term space needs.  For business owners that are planning retirement in the next few years, long term lease commitments are also a challenge.

But Larry, I keep reading in the news how soft the office market is, so how come it is so difficult to find space? The answers are counterintuitive. 

As the number of office buildings in foreclosure increases, we are seeing that the surviving properties nearby are experiencing consolidation whereby their occupancy rates are increasing. Add to this that the interest rates on mortgages are the highest they have been in decades, and you see the perfect storm.  So not only is space harder to find, but rents are up because of the higher cost to maintain a property.

To weather the storm, we recommend that you work with a tenant advisor.  Find one with a complete database of all the available properties who will take the time to locate the existing spaces in an ever-tightening circle of available options that work for you.

If you need to speak with an experienced tenant advisor, why not give us a call to find out why at Dickstein Real Estate Services, OUR DIFFERENCE ISYOUR ADVANTAGE®.

Regards,

Lawrence Dickstein