New Jersey’s commercial real estate industry may have begun to rebound in 2011, according to market reports from commercial real estate firms Cushman & Wakefield and Colliers International New Jersey.
Gualberto “Gil” Medina, executive managing director and former state secretary of commerce, says his firm’s data show that fundamental improvements in the state’s northern and central counties — including significant jumps in office leasing activity — tie directly to strengthening job growth.
“The Department of Labor and Workforce Development reported that New Jersey’s private sector employers added some 51,700 jobs in 2011,” says Medina. “Just this week, well-respected economist James Hughes, dean of Rutgers University’s Bloustein School, confirmed that the state is regaining vital traction. And while we have a long way to go, importantly, New Jersey has re-entered the ‘top 10’ list of U.S. states with the most jobs.”
Medina says signs of recovery in central New Jersey are clear. “Leasing increased dramatically in 2011. Additionally, rental rates are gradually increasing, and vacancy rates are modestly, but steadily, decreasing.”
Leasing activity jumped some 44 percent year-over-year, totaling 3.9 million square feet for 2011, as compared to 2.7 million square feet in 2010.
According to Cushman & Wakefield, this mostly resulted from several leases in the pharmaceutical industry, including Novo Nordisk’s 475,000-square-foot transaction at 800 Scudders Mill Road in Plainsboro. Also among the largest, LifeCell Corporation leased 117,937 square feet at 95 Corporate Drive in Bridgewater.
Several significant renewals also occurred in 2011, including Verizon Wireless at 30 Independence Boulevard in Warren (210,312 square feet), PNC Bank at 2 Tower Center in East Brunswick (131,363 square feet), and Qualcomm Flarion Technologies at 500 Somerset Corporate Boulevard in Bridgewater (125,472 square feet).
Cushman & Wakefield says the activity contributed to a 1.4 percentage point drop in central New Jersey’s overall vacancy rate, from 21.2 percent at the end of 2010 to 19.8 percent currently. Additionally, direct average asking rental rates have risen to $23.54 per square foot, up $0.27 per square foot since the end of 2010 and $0.63 per square foot since mid-2011.
“Reinforcing these positive indicators, construction began recently on a 250,000-square-foot headquarters campus for Church & Dwight at 100 Princeton South Corporate Center in Ewing,” Medina noted. “This furthers the case that central New Jersey is recuperating nicely.”
Sales activity in central New Jersey was modest in 2011, totaling 822,062 square feet. Still, notable transactions occurred at 333 Thornall Street (196,128 square feet) in Edison, which TA Associates purchased for $42.1 million, and at 110 Allen Road (197,475 square feet) in Bernards Township, which the Silverman Group acquired for $23.25 million.
There were also some signs of recovery in northern New Jersey, says Medina. With the highest year-end total since before the recession, leasing activity in the state’s northern counties reached 5.5 million square feet during 2011 and exceeded 2010 transactions (totaling 4.4 million square feet) by nearly 25 percent.
Looking ahead, Medina says he expects that 2012 will see continued positive trending for New Jersey’s office markets. “As the state’s economy further stabilizes and improves, real estate activity can be expected to follow suit. Although we do not anticipate that leasing activity will increase dramatically this year, it likely will maintain its current pace. Availabilities will become more valuable commensurate with a slow decline in vacancies.”
A report by Colliers states that the office market closed 2011 with steady results.
“Despite limited growth in the office market in 2011, cautious optimism has been the name of the game mainly because we didn’t see any significant losses either,” says Matt Dolly, head of research for Colliers International New Jersey.
“We think that 2012 is going to be a better year as corporate and consumer confidence start to creep back in, driving more leasing activity,” Dolly says. “Since the fourth quarter of 2010, we mostly saw companies moving their space and locations either to downsize or upgrade space, but we will need company growth across the board for there to be an impact.”
The overall office availability rate for northern and central New Jersey was 20.3 percent at the end of 2011, just slightly higher than the 20.1 percent at the end of the third quarter and 20 percent year-over-year, according to Colliers.
The amount of sublease space continues to decrease and now represents just 13 percent of available space, and while the total square footage of available sublease space is at its lowest level in three years, its proportion to overall available space is at its lowest level in 10 years.
However, this level is expected to increase in 2012 as some larger tenants consolidate, placing sublease space back on the market.
“Market players are all looking to 2012 with a great deal of anticipation,” Dolly says. “Many companies are waiting for the upcoming presidential election to set the market tone. Unemployment still remains a huge concern, but it seems that the business community overall genuinely expects the economy to finally improve this year, and New Jersey is doing a better job of attracting and keeping business.”