New Jersey Market Seen as Event Driven

Since 9/11, Hersh pointed out, the economy has been buffeted by things like the Enron/Andersen morass, and more recently by Tyco's woes. "These have created an issue of confidence," Hersh said. "Until confidence is restored, we will have problems."

According to fellow panelist Mark Yeager, president of Gale & Wentworth, Florham Park, NJ, the full impact of 9/11 "is far from being determined. Who's moving? Who's staying? These are questions that will play out over the next 6-12 months," Yeager said, referring to corporate site selection decisions relating to the World Trade Center attacks. He termed the current real estate market as more a result "of the economic cycle than the impact of 9/11."

"The demand for office space was down even before 9/11," concurred Emanuel Stern, president/COO of Hartz Mountain Industries, Secaucus, NJ. "The real problem was that the user groups stopped growing," he told SIOR attendees.

"About 14 million sf of space was lost in the attacks," Stern reminded. "But only four million sf of that has been retaken in the market. The fact that 10 million sf hasn't been taken translates into space that wasn't really needed at this time."

For the future, Yeager pointed out that events have "changed the way of doing business," specifically noting issues like security. Hersh noted that "from tragedy has come a rare opportunity to rebuild the infrastructure, especially transportation. Those problems were amplified by 9/11."

As far as New Jersey in particular, "the fundamentals of the real estate market are solid," according to Stern. "We came out of a period of low vacancy rates, interest rates are still low, and conditions just aren't that bad considering the fact that we're in a recession."

Hersh emphasized that the market isn't overbuilt compared to the last major downturn. Still, "existing overcapacity is a factor in certain sectors, especially telecom, but when companies start to grow again, they will fill that capacity.

Hersh also characterized the New Jersey market as one that "doesn't have a lot of rent spikes. In bad times, they don't go down that much, and in good times they don't go up that much. This is a steady, conservative market. It is a very deep, very consistent market where the ups and downs are not as big of an issue as they are elsewhere."

And recovery rests with the smaller end users, according to Yeager. "This will be a demand-driven recovery. "Because most of the tenants in the market are 15,000-, 20,000-, 50,000-sf users, the recovery rests with them, not with the Fortune 100 companies," he concluded.