At the end of the third quarter, the overall office vacancy rate rested at 18.7%, as compared to 17.8% at the end of September 2008. Still, the current rate is just 0.2% higher than three months ago. "For context, vacancy rates in Manhattan have more than doubled during the past year, and rents are down 20% to 30%," McCarthy said. "And even though empty space in New Jersey has crept upward, it still has not reached the level of the early 2000s."
Cushman & Wakefield credits employment numbers and a lack of over-development for this positive news. "The country has lost 7.6% of its office-using employment," Medina noted. "New Jersey has lost only 6.5%. Additionally, speculative office construction has remained limited over the past several years."
Currently, no new construction is underway in Northern New Jersey, and Central New Jersey has a modest 340,000 square feet under development. "This fact will support lower vacancies and higher rents when the recovery emerges," McCarthy added.
Similar to the office market, New Jersey's industrial market has held fairly steady. While the estimated vacancy rate has risen 1.6% over the past year to a current 8.8%, it is just 0.2 percentage points higher than at mid-year 2009. The average rental rate dropped 41 cents per square foot over the last 12 months and 23 cents over the past three to $6.23 per square foot.
Year-to-date leasing activity totals 8.3 million square feet, with a significant amount of deal-making taking place in the central counties. Two renewals comprised the largest transactions of the quarter, including Dotcom Distribution's 400,000-square-foot renewal/expansion at 100-400 Nixon Ln. in Edison and Pro Warehouse's 253,000-square-foot commitment at 280 Ridge Rd. in South Brunswick. The largest new lease of the quarter took place in Washington Township, where Princeton Fulfillment leased 152,027 square feet at 14 Applegate Dr.
Twelve additional transactions between 50,000 and 150,000 square feet reflect continued activity among smaller industrial users. "The number of deals getting done for this size requirement is a notable departure from the big-box demand that drove the market just a few years ago," Medina said. "Landlords have become more aggressive and more flexible, which is creating opportunities for tenants."
According to McCarthy, the near halt to new construction in the New Jersey industrial market will bolster the recovery. While some two million square feet of development was underway last year at this time, that number has dropped to only 200,000 square feet today.
"In general, while we are seeing a slow grind lower, the New Jersey commercial real estate market is comparatively stable," he concluded. "Looking ahead, we will see more companies across sectors taking advantage of lower rents to lock in long-term. That certainly will help the recovery. In turn, vacancy rates likely will peak and then begin to decline in 2010."
But lest we get too cocky here in the Garden State, there are still some major hurdles to overcome in terms of unemployment figures. "While we've escaped economic Armageddon, the nation remains in a deep employment hole," said Rutgers' Hughes. "And although 2008 is history, the bad news is that 2009 has been even worse."
On a brighter note, job losses moderated significantly starting in May of this year and we've seen what Hughes terms "the economic second derivative," or for those not versed in Calculus, a slowing in the rate of employment decline. "This always precedes stabilization," he added, before cautioning that we're still likely to have double-digit unemployment rates by the end of 2009/early 2010.
And despite the now-cliché expression, "this recession truly is different from any that we've seen before, particularly in terms of the job loss composition," affirmed Hughes. To put it in perspective, during the 1981 to 1982 downturn, 97.7% of jobs lost were in manufacturing/construction, while only 2.3% were private sector services. That's compared to between 2007 and 2009, when we've experienced a near-50/50 split between manufacturing/construction and private sector losses. According to Hughes, "This is the first white collar recession we've seen, so there's no historical precedent as to how the economy will recover."

Instant Insights /

Commercial Real Estate Holding Its Own

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