Cushman & Wakefield New Jersey Update Paints Mixed Picture
- Jul 28, 2008
Three Cushman & Wakefield Marketbeat reports covering New Jersey office and industrial markets depict a state that’s for the most part mirroring the national commercial real estate scene’s uncertainties, ambiguities and contradictions.And although the three reports cover northern New Jersey office, central New Jersey office and the state’s overall industrial market, there are some noteworthy similarities and parallels. The state lost 10,900 jobs in May, which bumped the unemployment rate to 5.4 percent, or just 0.1 percentage points below the national rate. Job losses have been especially heavy in the financial sector. In northern New Jersey, overall office vacancy rates are currently 16.2 percent, which is up 0.2 percentage points since the first quarter, but direct weighted average rental rates nonetheless rose from $27.17 to $27.35 per square foot, although concessions are getting more generous. Office leasing activity was down 43.0 percent from the first quarter. The situation in the central New Jersey office market is broadly similar. The Cushman report notes that the overall vacancy rate, currently 20.0 percent, is significantly higher than last year, although this jump is attributable in large part to one building. Direct weighted average rental rates are fluctuating around $25.36 per square foot. However, even in this weakening market, year to-date leasing activity remains healthy.In both office submarkets, sublease space is a substantial part of the situation: 16.0 percent in the northern and a whopping 24.9 percent in the central. And although year-to-date leasing activity remains healthy in central New Jersey, it’s off roughly 50 from the first quarter in the north. On the industrial side, the bad news is jobs and the good news is high-tech space and the Port Region. Athough job losses in transportation and warehousing were more than offset by gains in retail and wholesale trade, manufacturing job declines dwarfed them all. And although 2.5 million square feet of new space this year is likely to be little more than oversupply, the report foresees a healthy demand for new warehouse/distribution space in the Port Region, as companies facing high energy prices try to cut their transportation costs. Strong demand for high-tech space has increased rental rates for that product type, even as overall industrial rental rates decreased. In discussing the reports, Gil Medina (pictured), executive managing director of Cushman & Wakefield New Jersey told CPN that he likes a quote attributed to Benjamin Franklin, that New Jersey is “a valley of humility between two mountains of conceit,” i.e., Philadelphia and New York. The major force on New Jersey’s commercial real estate markets, Medina said, has been New York City and its $1 trillion economy. For example, the ongoing growth of Manhattan’s office market, and of the rents there, has continued to make New Jersey, especially the Hudson River waterfront, attractive to large-scale office users. Medina attributes the fact that northern New Jersey’s office rents are up slightly, despite a slight weakening in occupancy, to the momentum provided by that dynamic. In terms of New Jersey’s own economy, he noted that telecom jobs have been trending down for several years, but that growth in the pharmaceutical industry has counterbalanced that to an extent. In short, Medina said, the state’s economy is in “a period of restructuring” and will probably recover from the national recession (or whatever it is) both stronger and sooner than most cities. He also suggested that the fiscal reforms being pushed by New Jersey governor Jon Corzine should help improve the business climate in the state.