Mid-Year Market Report: Retail is Top NJ Sector

As far as the economy, "in New Jersey, recessions usually last about a year and are never quite as bad as they are nationally," according to Dr. Donald Moliver, director of the Real Estate Institute of Monmouth University, West Long Branch, NJ. He related that while some observers say "that we're out of the woods, the market is providing mixed signals."

Mark Yeager, president of the Gale Co., Florham Park, NJ, said that everything should be put in historical context. "Currently, we're at levels comparable to 1995-1996, and we need to keep this in mind when judging the market now." The bad news, according to Yeager: increased vacancies, unprecedented amounts of sublet space, falling rents, flat absorption and generally flat activity.

The good news: "The lack of new construction and a decrease in the sublet space coming on the market are among the positive signs," Yeager told the NAIOP gathering. "Our biggest challenge is lack of demand."

As for financing, "in recent years, a lot of money has gone into opportunistic deals, as well as core deals," according to Scott Janzen, principal of Lend Lease. "Today, core deals are more popular, especially those involving good quality class A office space."

And as far as industry sectors, Andrew Merin, EVP of Cushman & Wakefield of NJ, East Rutherford, asserted that "retail has been the surprise. Consumers are supporting the economy and retail leasing has remained strong."

Multifamily, meanwhile, is having a tougher time, in Merin's view. "With low projected job growth, the market is flat.

"Industrial property is also reflecting the effects of the economy," he continued. "The performance of this product type has slowed, but major corporations are still committing to the region." Offices, meanwhile, "have been hardest hit. Once job growth picks up, it will be 12 months or so before demand begins to grow. A significant recovery may take from one to three years."

Merin also pointed to a couple of key paradoxes. First, space availability is way up, but rents are still holding in the $30-per-sf range because "a significant amount of the space is sublet space, and landlords haven't yet been impacted."

The second paradox, according to Merin, is that even though market fundamentals aren't so hot, "capital has come onto the market in a wave. Because of the shift from Wall Street to tangible investments, there has been active interest in real estate. Investors are looking for safety.

"The good news," Merin concluded, "is that we're in New Jersey – we are the fifth largest office market, the eighth largest economy and the third largest market for corporate headquarters."