The commercial real estate market may have finally turned around, according to reports from several commercial brokers.
NAI Fennelly President Jerry Fennelly reports improvement in the Princeton area market last year that he expects to continue into 2012, while CB Richard Ellis and Cushman & Wakefield both cite similar success in the industrial market — especially at Exit 8A.
Fennelly, in his January market report, says that the Princeton market is improving faster than the national trend. “In the same manner that I announced its start in the beginning of 2008, just prior to the holiday break I announced to my family that the recession is over,” Fennelly says.
According to Fennelly, vacancies are down. The market experienced a decrease of some 2.5 percent in the vacancy rate from a year ago to 17.08 percent, sublease availability decreased by 34 percent, and velocity is increasing.
“We have just gone below 4 million square feet for the first time in five years,” he says. “This increase in supply was caused by a construction boom from 2004 to 2009, with 3.1 million square feet delivered at that time.
“There is 893,000 square feet vacant in that supply, or 28 percent which still has to be leased. Total growth first half of 2011 was 325,000 square feet, while the second half of 2011 was 686,340 square feet. The greater Princeton office market absorbed 1 million square feet of growth in a 12-month period; this is the strongest since 2008.”
The vacancy rate in the Route 1 market is 15 percent, where rents have decreased by 5 percent but have started to rebound. The average rents are between $19.50 to $32 per square foot.
In downtown Princeton, the vacancy rate has stabilized at 8 percent with rents in a wide range from $24 to $40 per square foot. Sales values remain at $400 per square foot.
Fennelly says the average growth per transaction edged up to 3,600 square feet (excluding Church & Dwight and Novo Nordisk). This is an increase of 22 percent from 2010, while the velocity of transactions increased by 9 percent in the second half of 2011.
“This indicates a rebuilding of the economy with start-ups in biopharma, sports and entertainment, and the migration of companies from other parts of the world,” says Fennelly. “We anticipate, based on a continued slower rate of development and slowly increasing demand, that the absorption rate will be positive for 2012.”
The biopharma sector reported stronger results with 400,603 square feet of growth occurring by Amicus, Abbott Labs, Princeton Biomeditech, Oncobiologics, and Integra Life Sciences.
Amicus consolidated into new facilities at Cedar Brook for 50,000 square feet. Celsion, Beacon, and Antarres each leased 10,000 square feet of Class A office space along the 295 beltway. Oncobiologics, Provid, and Aeustus migrated from North Jersey, leasing a combined 35,000 square feet.
Transave, on the heels of being acquired in 2010 by Ismed, leased 27,000 square feet of office/lab space. Transave is researching and delivering inhalant delivery systems to treat lung cancer.
Fennelly also reports that financial instability internationally has made the region an attractive destination for foreign businesses. Companies have migrated from Japan, Switzerland, and China with small pharmaceutical relocations, he says. Tsumara, Geistlich, Simcere, Nnit, Microlabs, and Tekseed leased 14,000 square feet collectively.
“Princeton continues to be a preferred location for international companies due to its central east coast location, proximity to pharma industry headquarters, and the region’s international recognition,” says Fennelly. “The major research and development centered on cancer and diabetes continue to produce bio company growth.”
The internet, software, media, and electronics category showed positive signs with 96,904 square feet of growth, due in part to the expansion of Princeton Power Systems. Medical grew by 55,600 square feet for the year.
“Doctors are experiencing a backlash from Obama healthcare, leading to dysfunction among practices and causing a reshuffling of medical groups,” Fennelly says. “Larger practices are positioning themselves into multiple markets, with larger geographical distances between each office. Smaller groups have been splitting up due to the pressure placed on them to invest in group-owned technology and to compete with larger practices.”
The two new hospitals — Capital Health in Hopewell, which opened last fall, and Princeton Medical Center on Route 1, opening in May — are creating a relocation of roughly 50,000 to 75,000 square feet of tenants per year.
Princeton Medical Group is expanding into 15,500 square feet of new medical space at Plainsboro Village Center, and Forrestal Village signed the Urology Group of Princeton. “These buildings are experiencing an increase in medical leasing as the date comes closer for the opening of the University Medical Center campus,” Fennelly says.
The Internet, software, electronic, and fiber category finished 2011 with 96,000 square feet of growth. Some 15 percent of the growth was generated by internet software companies such as Verus, Oracle and IP Accelerate, collectively leasing 41,000 square feet of Class A office space.
Electronics companies, such as Princeton Power Systems, which has created new converter technology for solar power and Solar City, leased 45,000 square feet combined to accommodate its growth.
Meanwhile, government, education and non-profits reduced by 27,500 square feet, typifying a reduction and consolidation of that sector into state-owned real estate. It lowered from 25 percent absorption in 2008 to only 7 percent growth in 2011. This includes 17,000 square feet of office work space leased by Eden Institute for the Eden WERCS Program at 4 Crossroads in Hamilton.
According to Fennelly, the real estate market is not the only place where the Princeton area is recovering faster — unemployment is lower than the national and state averages, too.
“The unemployment rate in Mercer and Middlesex counties is averaging between 7.5 and 8 percent,” Fennelly says. “The rate of job loss is trending downward, but private sector job growth has been slow as companies are accumulating retained earnings. This stockpiling of assets will eventually bring investment confidence and optimism, which will lead to an increase in hiring over the next 12 to 24 months.”
On the industrial front, recently released reports by Cushman & Wakefield and CB Richard Ellis report that the market rebounded in 2011 statewide.
Tenants signed nearly 23.4 million square feet of new industrial leases in northern and central New Jersey in 2011, representing the highest volume since before the recession, according to year-end statistics released on January 30 by Cushman & Wakefield.
The resurgence in activity exceeds the state’s 2010 industrial leasing total of 12.8 million square feet by 83.2 percent, with Exit 8A and the lower I-287 corridor leading the activity — each with more than 4.3 million square feet of transactions, Cushman says.
“Strong leasing activity helped cement 2011 as a turnaround year for New Jersey industrial,” says Gil Medina, Cushman & Wakefield’s New Jersey executive managing director. “With vacancy decreasing, tenants in the market today will notice more competition for space and will have to adjust their decision timelines accordingly. On the flip side, owners are hopeful rents will begin to increase with vacancy rates decreasing to pre-recession levels.”
One of the largest deals was in Robbinsville, where Kenco Logistics LLC leased 504,286 square feet at 100 West Manor Way.
The statewide vacancy rate is down 1.6 percent from 2010 to 9.6 percent, according to Cushman & Wakefield, and the Exit 8A corridor saw a substantial decrease from 2010, dropping from 12.7 percent to 10.9 percent.
CBRE reports similar statistics in its fourth quarter 2011 report, stating that in 2011 the market reached its highest point since the early 2000s.
“After another quarter of strong, positive momentum, New Jersey’s industrial real estate market made significant headway this year overall in recovering from the market’s trough,” states the report. “10-year historical lows in the state’s asking lease rate in each quarter of 2011 helped drive activity for the year to a historical high.”
In the fourth quarter, the state’s industrial real estate market saw 5.77 million square feet of new leasing, resulting in annual velocity of 25.78 million square feet — the highest volume of leasing in seven years, according to CBRE.
“With leasing velocity up 34.8 percent from last year and 61.9 percent from 2009, the industrial market reacted aggressively in 2011 to the pent up demand that has developed over the last few years amidst overall uncertainty,” says the report.
According to CBRE, five new leases and one purchase greater than 100,000 square feet at Exit 8A helped central Jersey to continue its outperformance over northern Jersey.
“At the close of the year, the northern portion of the state absorbed 850,000 square feet, although the central region’s absorption of 9.71 million square feet carried the New Jersey industrial market to 10.56 million square feet of positive absorption overall,” says the report.
It attributes the overwhelming positive movement in central Jersey to “large users being drawn to an area that can accommodate sizable requirements as well as a realization by tenants that central New Jersey is as equally accessible to the tri-state region as northern New Jersey.”