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Despite the capital-markets downturn and lending squeeze, developers are moving forward with the construction of mixed-use projects across Northern New Jersey, even though original blueprints face the prospect of being slightly revamped. Projects scheduled for completion after 2007 total 7.7 million sf, 2.7 million sf of which is slated to come online in Bergen and Essex counties. A healthy amount of this product will be retail and mixed-use located in urban infill areas. Projects such as Vornado Realty Trust’s Bergen Town Center, which will include 1.5 million sf of retail, and the 275-acre Harrison Commons in Harrison are examples of this redevelopment trend.

Perth Amboy, Harrison, Jersey City, Englewood and River Edge can all expect to see their CBDs transformed in the near future, thanks to healthy market conditions in the first half of the decade when many regional and national developers embarked upon their plans to build in the Garden State.

During the height of the commercial real estate boom in the first half of the decade, New Jersey’s retail sales figures were fueled by homeowners who refinanced or renovated their existing homes, or purchased new ones. Since the single-family housing market has cooled, the retail investment-sales market has slowed down, but not softened. However, over the long term the market is expected to stabilize. Demand will always remain healthy in New Jersey because of its proximity to New York City’s extremely robust economy, which penetrates virtually every region of the Garden State.

In Manhattan, professional and business services employers were expected to create jobs at a rate faster than overall employment growth through year-end 2007. Approximately 11,000 new positions were projected in the sector, a 2.3% increase and a gain from 9,400 jobs in 2006. A number of people who work in Midtown Manhattan live across the Hudson River in New Jersey, spending their retail dollars in their home state.Since many of New Jersey’s mixed-use retail projects were announced before capital markets crunch, developers have been forced to rethink their construction plans. Owners are taking a second look at their financials–and blueprints–to ensure their project contains the right mix of residential, retail and hotel units. They are pouring over data to make sure that the retail component still fills the intended niche or best serves the community in which it is located. Out of necessity, owners have become more cautious in an effort to capture the attention of today’s more discerning consumer. For instance, developers are analyzing whether they should move forward with market-rate rentals instead of condominium or townhouse-style developments. Some projects currently under construction were initially approved as condos, but have received variances by city planning commissions to permit the development of fair-market rentals. This development trend is expected to continue in 2008.

The capital markets shakeup impacted retail market conditions across New Jersey in the third quarter. Will that slowdown persist in 2008? At the end of November, there was still a reasonable amount of inventory on the market, but year-end retail sales figures have not yet been reported, so it may be too early to say.

In Northern New Jersey, the overall retail vacancy stands at roughly 3.5%, making it one of the healthiest in the country. Meanwhile, vacancy rates for neighborhood shopping centers are as much as 50-basis points lower. These rates are expected to hold firm in 2008. Investors are expected to expand portfolios in 2008. The market has demonstrated signs of softening, which has prompted a return to fundamentals on the part of developers and owners, a positive step that the entire real estate community should embrace with open arms.

Michael J. Fasano is the regional manager of the New Jersey office of Marcus & Millichap Real Estate Investment Services. Contact him by clicking here. The opinions expressed here are the author’s own.

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