4TH QUARTER 2013

New Jersey Office Market Overview

Partnership. Performance.

Overview Snapshot

New Jersey
Tenants who remained on the sidelines awaiting the passage of new business incentives through the New Jersey Economic Opportunity Act of 2013 in September have resurfaced. As these companies reassess their space needs, leasing options are becoming more abundant for tenants as additional large blocks of office space have come available due to corporate acquisitions and tenants reducing their footprint.

Northern New Jersey

The absence of leases in excess of 100,000 square feet, coupled with a few large blocks of space coming back to the market, kept the overall vacancy rate unchanged. When considering new listings of 50,000 square feet or greater, nearly 600,000 square feet of additional space became available during the quarter.

Central New Jersey

The addition of several large blocks of space outpaced leasing activity, resulting in the overall vacancy rate to increase a half point to 19.1%, but remained lower than 20.2% when compared year-over-year. In recent months, there have been 10 new listings of 50,000 square feet or greater added to the market.

4TH QUARTER 2013

New Jersey

New Jersey Office Market Report

Partnership. Performance.

Office Market Monitor

Market Facts
Vacancy Rates
25% 20% 15% 10% 5% 0% YE08 YE09 YE10 YE11 YE12 YE13

Market Takeaway
New Jersey Overview 2013 was a very eventful year for the New Jersey office market. Developers have begun to assess the value of some of the states growing number of aging, vacant office complexes. The healthcare industry continued to grow rapidly and it is expected that this trend will continue. Tech hiring is increasing, and New Jersey is at the forefront of job growth in this sector. In fact, 22 of the NJBIZ 50 fastest-growing companies for 2013 are technology-related. As the year came to a close, market indicators suggested a very active and hopefully, very fruitful, 2014. For the past five years, recognizing the uncertainty of the economy, the trend among tenants has been toward renewing lease agreements, which is less expensive and less disruptive to operations than relocating to new space. While tenants may elect to remain in place, they are also willing to relocate for a more cost-effective and efficient space option. To address this, landlords are now more willing to allow space reductions to retain existing tenants, which has resulted in increased availability of smaller units on the market. As companies reassess their space needs, leasing options are becoming more abundant for tenants as additional large blocks of office space have come available due to corporate acquisitions and tenants reducing their footprint. Siemens, for example, redesigned its Iselin offices in Metro Park to help appeal to younger talent. Now, more than one-third of the 239,452-square-foot building is available for sublease. In the same market, 81,276 square feet of space previously occupied by Maidenform was closed as the intimate apparel maker was acquired by Hanesbrands. Following a strong six months of positive absorption, leasing velocity slowed and the office market vacancy rate receded slightly. As of the fourth quarter of 2013, 21.0% of office space remained vacant, compared to 20.8% in the previous quarter and 21.2% year-over-year. For the first time since the second quarter of 2007, asking rents have increased for three consecutive quarters and now average $22.79 per square foot (psf) compared to $22.54 psf at the close of 2012. Recent economic reports provide for an optimistic outlook. The state unemployment rate dropped to 7.8%, its lowest level since January 2009. A survey by the New Jersey Business & Industry Association (NJBIA) resulted in the most positive nearterm outlook in 16 years. Provident Banks 2013 Business Barometer measures that nearly 60% of 300 business owners surveyed plan to hire employees in 2014, and according to Opportunity Nation, New Jersey ranked 8th among states with the most economic opportunity. With a reelected, pro-business Governor Chris Christie, and the passage of the Economic Opportunity Act, perhaps it is incumbent upon prospective tenants to seize the current opportunities available to them.

Asking Rents
$25.00 $24.00 $23.00 $22.00 $21.00 YE08 YE09 YE10 YE11 YE12 YE13

Net Absorption
2,000,000 0 (2,000,000) (4,000,000) (6,000,000) YE08 YE09 YE10 YE11 YE12 YE13

E. & O.E.: The information contained herein was obtained from sources which we deem reliable and, while thought to be correct, is not guaranteed by Avison Young

Market Takeaway
Northern New Jersey Overview Following a slightly improved third quarter, the office market in northern New Jersey was stagnant for the final quarter of 2013. The absence of leases in excess of 100,000 square feet, coupled with a few large blocks of space coming back to the market, kept the overall vacancy rate unchanged. When considering new listings of 50,000 square feet or greater, nearly 600,000 square feet of additional space became available during the quarter. The much-anticipated Goldman Sachs space along the Hudson Waterfront is available, adding more than 300,000 square feet alone. The financial services giant originally hoped to expand into this space. Parsippany received a boost when GAF, the largest roofing manufacturer, announced it would relocate its corporate headquarters there from Wayne, N.J. GAF acquired the former 377,000-square-foot Realogy headquarters for $8.35 million, and will move 600 employees to the facility once it is upgraded to fit the companys needs. Earlier this year, Ashland Specialty Ingredients closed its Wayne operations and relocated to other parts of New Jersey, and in 2011, Bayer Healthcare decided to exit Wayne to relocate its U.S. headquarters to Whippany, a move that commenced this summer. Wayne gained a tenant when Haier America chose to relocate 500 jobs and its U.S. headquarters from Manhattan, leasing a former Cardinal Health building. Both the overall vacancy rate and average asking rents remained virtually unchanged, closing the quarter at 22.3% and $23.23 psf, respectively. Central New Jersey Overview The central New Jersey office market experienced a bit of a dichotomy during the fourth quarter of 2013. While the four largest office leases signed in New Jersey during the quarter occurred in central New Jersey, the addition of several large blocks of space outpaced leasing activity, resulting in an overall increase in the vacancy rate. In recent months, there have been 10 new listings of 50,000 square feet or greater added to the market. In addition to the previously mentioned Siemens and Maidenform office space reductions, spaces occupied by Commvault, Merck and Advanced Health Media, among others, have all been listed on the market. At 175,000 square feet, the Commvault block is the largest, as the data and information management software company plans on moving to a new development in the Tinton Falls section of Fort Monmouth. Valeant Pharmaceuticals International signed the largest office lease in New Jersey for 2013 during the fourth quarter, moving its American headquarters within Bridgewater from 150,000 square feet on Route 202/206 to a 310,000-square-foot building at Somerset Corporate Center. The company was awarded a Grow New Jersey grant of $39,502,500 over 10 years as part of the transaction. Also along the Route 78/287 Corridor, Avaya sold its headquarters at 211 Mount Airy Road in Basking Ridge and leased back nearly half of the 283,000-square-foot building. For the quarter, the overall vacancy rate increased a half point to 19.1%, but remained lower than 20.2% year-over-year. Average asking rents closed at $22.06 psf, up from both the previous quarter and 2012 year-end figures.

Recent Tenant Activity

Tenant Name GAF Valeant Pharmaceuticals International Avaya (SALE/LEASEBACK) Address 1 Campus Drive 211 Mount Airy Road City Parsippany Basking Ridge Square Feet 377,000 310,000 135,000

400 Somerset Corporate Boulevard Bridgewater

Contact Information
Matthew Dolly 1120 Headquarters Plaza, West Tower, 4th Floor Morristown, NJ 07960 P 973.898.4016 matthew.dolly@avisonyoung.com

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2013 Avison Young Commercial Real Estate (Ontario) Inc., Brokerage E. & O.E.: The information contained herein was obtained from sources which we deem reliable and, while thought to be correct, is not guaranteed by Avison Young. Acknowledgement: Data for graphs, charts and tables used in this report are sourced from Avison Young and Altus InSite. Some of the data in this report has been gathered from third party sources and has not been independently verified by Avison Young. Avison Young makes no warranties or representations as to the completeness or accuracy thereof.