3Q NJ Office-Industrial Stats Reflect Signs of Recovery

14 Oct, 2010, East Rutherford

Third quarter 2010 data released today by commercial real estate services firm Cushman & Wakefield, Inc. unveils a mixed picture for the New Jersey market, with a continued trend toward gradual recovery. While the Northern New Jersey office market experienced some unease during the past three months, the state's central counties showed long-awaited signs of improvement, and the industrial sector demonstrated a strengthening pulse.

"The recession officially ended back in June of 2009, yet the sentiment of 'slow and steady' continues to resonate throughout the nation," said Gualberto "Gil" Medina, the company's executive managing director for New Jersey. "This reality is reflected clearly in New Jersey's office and industrial real estate markets. Complete recovery will not be immediate; this has been the worst recession in the last 50 years."

OFFICE RECAP

According to Medina, the Northern New Jersey office market is experiencing some challenges. "Significant product was delivered to the market during the first three quarters of 2010, while less space was absorbed," he said.

The overall vacancy rate, now 17.2 percent, increased by 0.5 percent from last quarter, while the overall average weighted asking rental rate, currently $25.63 per square foot, edged lower by $0.11. Leasing activity is down from last quarter by nearly 368,000 square feet and represents approximately 72.0 percent of third quarter 2009 totals.

Expansions dominated the market during the third quarter. The Bank of Tokyo-Mitsubishi UFJ increased its presence at Harborside Financial Center III by 24,607 square feet for a total of 161,683 square feet. The National Basketball Association Media Ventures expanded by 69,500 square feet at 100 Plaza Drive in Secaucus to occupy 173,000 square feet there. In Parsippany, Zurich American Insurance relocated within Morris Corporate Center and expanded by approximately 18,000 square feet for a total of 68,729 square feet.

"The Northern New Jersey commercial real estate market certainly has encountered several potholes, however with markets such as Morris County and the Hudson Waterfront historically driving tenant activity, we expect to see further movement over the next several quarters," Medina said. "Renewals and in-place expansions are likely to drive activity through year-end 2010."

In Central New Jersey, for the first quarter in recent history the office market exhibited gradual signs of stability. The overall vacancy rate, currently 21.8 percent, remained flat during the past three months. However, the overall weighted average asking rental rate increased by $0.39 per square foot, to $23.10 per square foot.

"After increasing from first quarter to second quarter, sublease space in Central New Jersey declined during the past three months," Medina said. "New leasing activity continues to improve as well, measuring approximately 100,000 square feet above last quarter and surpassing each 2009 quarterly total."

The health and life sciences industries helped to elevate leasing within the central markets. At 420 Mountain Avenue in Berkeley Heights, Advanced Health Media secured 123,082 square feet of former Hewlett Packard space. Otsuka America Pharmaceutical, Inc. expanded by 33,000 square feet at 1 University Square Drive in West Windsor to occupy a total of 100,531 square feet. Additional pharmaceutical leases included Ono Pharmaceuticals' 20,667-square-foot commitment at 2000 Lenox Drive in Lawrence Township, and Archimedes Pharma US, Inc.'s 14,265-square-foot commitment at 1 Crossroads Drive in Bedminster.

"While it appears as though a steady quarterly rebound is reason for optimism, the Central New Jersey market still has surplus product," Medina said. "The pharmaceutical giants historically have been the market drivers for this region; however with the recent merger activity, we still may see significant consolidations."

In Central New Jersey, construction deliveries remain very low, totaling 339,865 square feet so far this year. MetroTop Plaza II, a 255,000-square-foot, Class A office building in Woodbridge, is now fully available for lease. "New construction activity slowed its pace primarily due to consolidations and limited expansions during the recession," Medina said. "This has helped keep oversupply in check, which is a positive as the market begins to move forward."

INDUSTRIAL OVERVIEW

Overall available industrial space in Northern and Central New Jersey combined remained fairly flat, with a minimal year-over-year increase - primarily due to the absorption of existing space. "Year-to-date leasing totals are up from a year ago by approximately 1.1 million square feet," Medina said. "Similar to the office sector, renewals comprised the bulk of activity across all submarkets."

The third quarter direct triple net weighted average asking rental rate registered $5.84 per square foot, representing a $0.39 per-square-foot year-over-year decline, yet only a $0.08 per-square-foot decline from last quarter.

Notably during the third quarter, the New York Stock Exchange (NYSE) held a soft opening for its new 400,000-square-foot data center in Mahwah. In South Brunswick, Coca-Cola Enterprises Inc. broke ground on a 225,000-square-foot office and distribution center. The project will bring more than 600 jobs to Middlesex County.

Construction activity is off the pace set in previous years. At this time last year, more than 1.5 million square feet of new construction was recorded. Year-to-date in 2010, only the New York Stock Exchange building has been delivered, and a modest 1.0 million square feet of development is underway in Northern and Central New Jersey.

"Now that the industrial market is witnessing a gradual turnaround, we expect that year-end activity will stabilize," Medina said. "The Garden State has become a new hub of activity for data-specific tenants like Credit Suisse and The New York Stock Exchange. We expect others to follow suit; however, their stringent requirements likely will require new product, which will limit their impact on existing industrial inventory."

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