Warehouse space continued to be very strong in the first quarter of 2019. 5,000 SF up to 200,000 SF ranges are in the most demand, and inventory is very low. Both on the sale and lease ends inventories are very low.
Many buyers are coming down from the New York markets and purchasing these warehouses. The pricing is relatively still expensive in the New York markets compared to Central New Jersey markets. Central New Jersey warehouse lease space is coming in at $4-$9/SF NNN and $35-$70/SF on the sale side.
The medical marijuana craze to find warehouse space in NJ has fizzled a bit as the very limited amount of dispensary — referred to as Alternative Treatment Center licenses — were issued by the state. 149 businesses applied for these licenses and only six were granted.
Office space remained flat with vacancies of approximately 15 percent. The average lease rates in Central New Jersey are between $12-$20 NNN, and $140-$185/SF on the sale side.
We have also seen a transformation of vacant office buildings to alternative uses and expect this trend to continue. Many of these alternate uses included mixed use and a component of residential with some retail.
Retail space has begun to see some positive activity and vacancies seem to be declining to below 10 percent. Retail lease pricing is slightly higher than office space coming in at $15-$25/SF NNN. We are still seeing some strength in the medical office space sector and urgent care centers taking some of this office space.
Income producing multi-family units remains strong with many people downsizing and the demand for rental housing units remains strong. The CAP rate on these multi-family income producing units remains around 8 to 12 percent. The Federal Reserve has not raised its short term borrowing rates in the first quarter of 2019. The Fed Funds rate remained at 2.5 percent and the Prime Interest rate around 5.5 percent. Unemployment numbers continue to be around 4.1 percent in the Central New Jersey markets.
The U.S. economy grew — gross domestic product (GDP) — by an annualized 3.2 percent in the first quarter of 2019, easily beating market expectations of 2 percent. The biggest leaders in the GDP numbers were personal consumption expenditures (PCE), private inventory investment, exports, state and local government spending, and nonresidential fixed investment. The average annual GDP growth has averaged 3.2 percent since 1947 in the United States. All of the above economic indicators mentioned above suggest a growing and expanding U.S. economy. These are positive signs for a vibrant commercial real estate market. We are confident that 2019 will continue the progress we made last year in the stabilizing and growing commercial real estate market, and all indications are that we are continuing to move forward in a positive direction.
Joseph R. Ridolfi is Broker/ Owner of Joseph R. Ridolfi & Associates, LLC. www.ridolfi-associates.com.