Modest Recovery, Continued Uncertainty Define N.J. Real Estate

Cushman & Wakefield Reports Slower Pace of Activity Year to Date in 2012
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Oct. 25, 2012 - PRLog -- Performance within New Jersey's office and industrial real estate markets during the third quarter of 2012 indicates a climate of modest recovery tampered by continued uncertainty, according to commercial real estate services firm Cushman & Wakefield, Inc. Third quarter market data released by the firm's East Rutherford-based research services team shows a generally slower pace of activity in 2012, yet still indicates that fundamentals are improving.

"Despite a significant addition of private sector jobs and other signs of economic improvement, New Jersey faces an unemployment rate of 9.8 percent, which is well above the national average of 7.8 percent," noted Gualberto "Gil" Medina, executive managing director of the firm's New Jersey operations. "Jobs are the key driver for real estate."

Medina added that the upcoming election may be impacting commercial real estate as well. "Many landlords and corporate decision-makers are inclined to wait for an outcome before making major moves," he said. "As such, activity will struggle to reach the high year-end levels we saw in 2011."

When it comes to leasing, the Northern New Jersey market lags nearly 28 percent behind 2011 activity with 2.7 million square feet of year-to-date commitments. In the largest leases of the third quarter, KPMG took 51,562 square feet at 51 JFK Parkway in Short Hills, and Prudent Publishing Company committed to 34,137 square feet at 65 Challenger Road in Ridgefield Park.

"Leasing remains low even in Northern New Jersey's traditionally active submarkets like the Hudson Waterfront," Medina said. "As a result, occupancy is flat, and rents are experiencing downward pressure."

The total vacancy rate in the northern counties has held steady from year-end 2011. At 17.9 percent, this reflects a 0.1 percentage point year-over-year increase. The direct average asking rental rate - currently $25.69 per square foot - dropped $0.23 per square foot since mid-year and $0.12 per square foot since year-end 2011.

Several significant renewals provided bright spots within this lackluster environment. PSE&G executed the most substantial transaction of the quarter, when it renewed its 825,000-square-foot lease at 80 Park Place in Newark. In Florham Park, Novartis Pharmaceuticals Corporation renewed for 160,000 square feet at 180 Park Avenue.

Furthermore, Northern New Jersey investment activity proved strong in the third quarter, with 11 properties and nearly 1.2 million square feet traded. American Realty Capital Trust executed the largest transaction when it acquired 2-4 Mill Ridge Office Center in Chester from Devan Gardens LLC for $10 million.

Central New Jersey provides nearly a mirror image to its northern counterpart. The region posted strong leasing performance through the third quarter, despite lagging 21.6 percent behind its 2011 activity. Year to date, tenants have committed to nearly 2.4 million square feet of space in the central counties.

The two largest leases of the quarter both occurred at MetroTop Plaza II in Woodbridge. Accounting firm EisnerAmper LLP took 87,083 square feet and engineering design company Hatch Mott MacDonald leased 81,371 square feet, bringing the newly constructed building to full occupancy. The most substantial Central New Jersey renewal involved Barnes & Noble's 73,626-square-foot recommitment at 120 Mountainview Boulevard in Bernards Township.

"Occupancy continues to rise in Central New Jersey, with the total vacancy rate dropping 1.6 percentage points year-over-year to a current 19.0 percent," Medina said. "And while the region's direct average asking rental rate fell $0.11 per square foot from mid-year, it has risen $0.24 per square foot since the end of 2011, to $23.78 per square foot. We expect that figure to begin rising again as the market readjusts to its higher occupancy rate."

Yet sales activity in Central New Jersey has been slow compared to 2011. The largest trade of the quarter occurred at 601 Bangs Avenue in Asbury Park, where Asbury Bond Street LLC purchased the 50,000-square-foot building from DRLA, LLC for $3.7 million.

"Despite the wait-and-see attitude that is tampering activity levels, office market fundamentals should improve modestly statewide in the coming months," Medina said. "We fully expect that 2013 will bring substantial momentum."

Slow-but-steady progress defines the New Jersey industrial market heading into the final months of 2012, according to Medina. By the end of September, 14.4 million square feet of new industrial leasing already had passed year-end totals for both 2009 and 2010 (by 5.9 percent and 12.5 percent, respectively). Still, volume lags behind 2011 (by 19.5 percent).

The largest new industrial lease of the third quarter took place in the Exit 8A Market, where third party logistics company Dotcom Distribution subleased 443,421 square feet at 200 Liberty Way in Cranbury. Additionally, freight management provider CEVA Logistics took 324,000 square feet at 26 Engelhard Drive in Monroe Township and Salson Logistics leased 260,000 square feet at 481 Doremus Avenue in Newark. Noteworthy renewals included G-III Apparel Group (305,000 square feet) at 308 Herrod Boulevard, South Brunswick and RPM Warehouse (304,286 square feet) at 99 Hook Road, Bayonne.

This activity and the ongoing slow pace of new construction deliveries has resulted in positive year-to-date absorption of nearly 1.7 million square feet. The total vacancy rate has fallen 0.9 percentage points year-over-year, to a current 8.9 percent.

"In Central New Jersey, improvement is even more dramatic, with the rate falling 1.9 percentage points year-over-year, to 8.1 percent," Medina said. "The Exit 8A market served as the driving force in the industrial sector's strong performance during the third quarter. In contrast, the Meadowlands market, typically one of the most successful industrial areas in Northern New Jersey, has seen a slight uptick in its vacancy rate."

The state's direct weighted average asking rental rate for industrial product has risen 2.3 percent year-over-year, climbing to $5.73 per square foot. "We expect this increase to continue," Medina said. "Simply put, as industrial market fundamentals gradually improve, so will the upward pressure on rents."

Industrial investment sales activity also remains strong. In the largest industrial transaction in several years, during the third quarter, Cohen Asset Management purchased a 2.6 million-square-foot portfolio of nine buildings - in Elizabeth, and the Hudson Waterfront, Lower I-287 and Exit 8A submarkets - from Avidan Management for an undisclosed price.
Source:Cushman and Wakefield of New Jersey
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