Central New Jersey’s commercial real estate market is finally not taking a beating. After a rocky start (and following a downright scary 2009), 2010 shaped up to be fairly stable, according to the latest market report from commercial real estate agency NAI Global, 4 Independence Way.
After a prolonged period of frozen credit, sidelined investors, stalled development, rising vacancy rates, and declining rental rates and property values everywhere, NAI reports modest improvement in just about every market sector as 2011 rolls in.
The agency’s claims get a boost from a flurry of real estate deals that have occurred in the Princeton area in the past few weeks, most recently the $55 million sale of Princeton Forrestal Village to New York firm Investcorp and Verizon New Jersey’s decision to stay for another five years at Horizon Center Business in Hamilton. The telecommunications firm is leasing the entire 95,000-square-foot building through 2017. Verizon was represented by Marc Rosenberg of Cushman & Wakefield. Mack-Cali Real Estate, which owns the site, represented itself.
Cushman & Wakefield’s fourth quarter report shows good and bad in the Mercer County office market. According to this report, Mercer County’s Class-A office space is one of the few bright spots. The submarket has an overall absorption rate of 268,757square feet and is, other than Hunterdon County (with a little more than 93,000 square feet of Class-A absorption), the only such market in the area that finished 2010 in the black. Better news for Mercer County is that it saw so much activity with an average asking rent of roughly $33 per square foot, compared with the $15 per square foot in Hunterdon.
However, Class-B and Class-C office buildings did not do so well in Mercer County, according to Cushman & Wakefield. Combined, the two classes are almost 115,000 square feet in the negative column (while Hunterdon County remained about 8,000 square feet ahead). Mercer also is contending with a 17 percent vacancy rate in its Class-B suites and a 12.5 perrcent vacancy rate in Class-C.
Jeffrey Finn, president and CEO of NAI, said that tenants around the world have been taking advantage of lower rental rates and deals. Two years ago several commercial real estate agents in the Princeton area, notably Matt Malatich of Hilton Realty and Mickey Landis of Boston Properties, said that commercial real estate would survive through sweetened deals for tenants.
Landlords, realizing that some rent is better than empty buildings, were quick to catch on, but the collapse of the economy in the fall of 2008 took a hefty bite out of vacancy rates everywhere. Hit particularly hard was central New Jersey’s industrial market, which saw vacancy rates exceed 30 percent in areas like Bordentown, Hamilton, and Cranbury before the bleeding stopped.
According to NAI’s report, Princeton’s Class A office market has leveled off at a 13 percent vacancy rate, pretty much where it was four months ago — and that account had held steady from four months earlier still.
Princeton has not seen much new office construction, but with last summer’s move-ins to University Square at Route 1 and Alexander Road by Otsuka Pharmaceuticals and Axis Insurance (see U.S. 1, October 20, 2010), newer buildings are at last seeing new tenants.
According to Malatich, there has been some organic growth in the office market, most notably Novo Nordisk’s recent 49,000-square-foot expansion lease at 500 College Road, as well as a lot of lateral movement (firms moving from building to building in the same market). “Much of the lateral movement has been motivated by the desire to trade up in quality or to reduce occupancy costs,” Malatich says.
Malatich says also that as the market continues to tighten up, there will be “fewer desirable options for tenants and increased competition for available space.” He also sees a slowdown of the types of deals that have carried the office market through its latest quake. “I think the pendulum is shifting from a tenants’ market to an owners’ market,” he says. “I anticipate reduced vacancy rates and fewer concessions offered by landlords to retain and attract tenants.”
According to the NAI report, mergers and acquisitions in the industrial sector have greatly buoyed that market in the past quarter. Moves are helping too. Ritchie & Page, a Trenton-based beer distributor, is building a 180,000 square-foot site in the Exit 7A submarket near Robbinsville, and Princeton Optronics recently bought a 47,000-square-foot manufacturing building for $1.54 million there as well, Finn says
Also showing signs of recovery is the retail market. Hit particularly hard in northern New Jersey, retail struggled here before finding an uneasy stasis late in 2010. Big box retail flew from the northern part of the state, but apart from Circuit City’s chainwide closeout last year, Princeton’s big box stores have not suffered nearly as badly. Borders Books has closed its Nassau Park location, but Circuit City’s old spot on Route 1 near Quakerbridge Mall was taken over by P.C. Richard.
On the more modest, storefront side of retail, Plainfield-based Levin Management, one of the largest managers of retail space in the state, has leased 3,800 square feet to the U.S. military at Ewing’s Capitol Plaza.
The space will house a recruiting center for the Army. Navy, and Marine Corps where North Olden Avenue meets Princeton Avenue (Route 206).
The military will share space in the 356,845-square-foot shopping center with Forman Mills, the Save-A-Lot Supermarket, GNC, and Advance Auto.
Overall, according to NAI, retail here has leveled off at about 10 percent vacancy.
Finn says new investment in area commercial markets stems from a general thaw in lending. After Wall Street collapsed in 2008 credit dried up, and it was anticipated that a commercial collapse at least as bad as that of residential real estate would soon follow. Fortunately for the commercial market, the massive wave of foreclosures that was predicted heading into 2010 never materialized as financial institutions opted to extend or re-work troubled loans, Finn says. Also, he says, the sidelines are growing crowded with REITs, private equity, and institutional investors who have amassed a tremendous amount of capital and are actively looking for deals.
According to the report, job growth (and the consequent rise in consumer confidence) will be key to the future of the commercial market. Though it’s hard to be optimistic, the latest unemployment figures in New Jersey show a better picture than they did at Thanksgiving. Unemployment is at 9.6 percent now, and was at 9.8 then.
#b#NAI Global#/b#, 4 Independence Way, Suite 400, Princeton 08540; 609-945-4000; fax, 609-945-4001. Jeffrey M. Finn, president and CEO. www.naiglobal.com.