Things might not be as bad as they seem for commercial real estate in central and northern New Jersey — particularly in Somerset, which appears to be growing increasingly attractive to corporations, according to the latest edition of the quarterly Sitar-Rutgers Regional Report, published by the Edward J. Bloustein School of Public Policy at Rutgers and commercial real estate firm Sitar Company of Iselin.
The report, released last week, features a study by Sachiyo Asakawa, Greg Nowell, and Christopher Santoro of Sitar that avers that the northern and central New Jersey office markets remained relatively stable, despite a pandemic, fourth-quarter meltdown in the economy and the state’s highest unemployment figures (7.1 percent) since 1996. Overall, vacancy rates in this market leveled at 15.8 percent, up from 15.5 percent from the year prior.
Mercer County comes in slightly better than this average. Here 365 building yield a little more than 17.6 million square feet of commercial space, of which 2.6 million square feet was available at the end of 2008. This puts the county’s vacancy rate at 14.9 percent, the fourth-lowest in the state (and ahead of Somerset County, which has 16.3 percent available space). This does not, however, count sublet vacancies, which bring the county’s vacancy rate to a flat 17 percent.
Union County, with 335 buildings and more than 11 million square feet to fill, has the lowest vacancy rate, 9.2 percent, while Hunterdon County, with only 63 buildings and nearly two million square feet to fill, has a 28.4 percent vacancy rate. Overall, central New Jersey, with 15 million total square feet, has a 15.4 percent vacancy rate.
The average asking rate for office space in the region was $26.92 per square foot, “a solid $1.15 rise from the previous quarter and a $1.13 rise from the same quarter in 2007,” the report states. Mercer County managers, on average, ask $27.63.
The vacancy rate of sublease space dropped from 2.1 percent to 1.9 percent in the third quarter of 2008, while vacant space available for sublease fell by 500,000 square feet, from the previous quarter. According to the report, this is the smallest square footage of inventory space available for sublease since 2001. The authors reason that as more tenants sublease their portions of existing space an increasing number of tenants are also seeking sublease space for short-term commitment.
Overall leasing totaled 1.9 million square feet, which is 500,000 square feet less than the third quarter of 2008 and 1.3 million square feet less than the same period of 2007. However, though leasing activity was slowing down, the largest three new leases (in terms of square footage) occurred during the otherwise chaotic fourth quarter of 2008. The largest of the three was in Somerset, where InVentiv Health, a medical IT and consulting firm, signed a 155,962-square-foot lease at 500 Atrium Drive. Verizon signed a 153,000-square-foot lease in Livingston, and MLB Productions, major league baseball’s cable television station, leased 142,271 square feet in Secaucus.
The authors are particularly positive on the Somerset County market, which they say offers “a large inventory of high-quality products in corporate settings with highly competitive rates. Attracting large, well-credited corporations to the market in this economic climate will be key to the county’s economic success.”
Closer to Princeton, long-term renewal leases remain strong for those tenants taking advantage of declining rental rates. The largest renewal in Princeton was that of electronics firm Thomson Licensing, which renewed 62,543 square feet at 2 Independence Way.
Not surprisingly, the authors expect the economic slump to ring in 2010, but they do offer hope. “During these challenging times there are still opportunities for the commercial real estate market to hold steady and even turn things around,” the report states. “To achieve this, government, landlords, and real estate brokers must work together.”
To this end, Governor Jon Corzine has created the 29-member New Jersey Real Estate Advisory Board, comprised of advisors from academe, banking and lending, commercial real estate brokerage and investment, construction management, housing, industry, law, office and retail, and risk management.
“The Board will advise the governor on ways to encourage economic development, thereby enhancing the state’s attractiveness to investors and the business community,” the report states.
The authors conclude that there is some optimism based on the presence of a new administration in Washington. They feel this shift could mean that business sectors will improve or at least recover some long-overdue stability. “
The report can be read in full at www.policy.rutgers.edu/reports/sitar/sitarfeb09.pdf