C&W: N.J. Industrial Market Strengthens, Office Remains Flat
EAST RUTHERFORD, N.J., April 5, 2013 - The industrial sector continued to pick up pace during the first quarter of 2013, positioning it as the bright spot for New Jersey's commercial real estate industry, according to Cushman & Wakefield, Inc.'s East Rutherford-based Research Services team. The office sector remains sluggish, with improved performance dependent on job growth - which has yet to take hold in the Garden State.
NEW JERSEY INDUSTRIAL HEATS UP
The Northern and Central New Jersey industrial market posted 2.3 million square feet in positive absorption during the first three months of 2013. More than 5.0 million square feet of new industrial leases were signed, a slight increase compared to 4.6 million square feet one year ago.
"Demand has intensified, especially in the Northern counties, where the Meadowlands and Port submarkets combined for more than 1.0 million square feet - nearly half - of the state's total absorption," noted Gualberto "Gil" Medina, Cushman & Wakefield's New Jersey executive managing director. "More than 2.4 million square feet of leasing activity closed in that region, the highest quarterly total since the third quarter of 2011."
Meanwhile, Central New Jersey posted almost 2.7 million square feet of new leasing, its highest total since mid-year 2012. The most active submarkets during the first quarter was Lower I-287 with 1.3 million square feet of signed deals.
"Deals in excess of 100,000 square feet continued to drive new activity during the first quarter; 15 transactions of this size and larger closed," Medina said. "This activity effectively offset nine blocks of space in excess of 100,000 square feet coming online during the past three months, which is pretty impressive."
This resulted in a marked dip in the Northern New Jersey vacancy rate, which fell from 10.1 percent at year-end 2012 to 9.3 percent currently. The Central New Jersey vacancy rate remained flat, at 8.2 percent. Combined, the Northern and Central markets ended the quarter with an overall vacancy rate of 8.7 percent.
On the sales front, activity was up considerably during the first three months of 2013, with almost 7.0 million square feet of industrial properties trading hands. For context, 12.8 million square feet industrial product sold in all of 2012.
"We expect the industrial market to remain our region's ‘good news' story moving into the heart of 2013," Medina noted. "Performance here reflects strong fundamentals nationwide, and particularly around the ports of the East and West coasts."
STATUS QUO FOR OFFICE MARKETS
New office demand continued on a slow pace through the first three months of 2013, reflecting sluggish trending reported at year-end 2012. For the second straight quarter, Northern and Central New Jersey experienced negative net absorption (-633,792 square feet). Just more than 1.75 million square feet of leasing activity did not offset the notable blocks of space that came online, especially in the Northern counties.
With approximately 800,000 square feet of leasing, Northern New Jersey's performance has been weak compared to last year, when 932,447 square feet of deals had closed by this time. Central New Jersey fared better, accruing more than 900,000 square feet of new leasing volume during the first quarter, its highest total in a year.
"Activity has been spread throughout much of the state thus far in 2013, with seven submarkets exceeding 100,000 square feet of transactional volume," Medina said. "The Route 10/24, Woodbridge/Edison and Princeton submarkets are the most active currently."
Pharmaceutical and financial services firms drove first quarter leasing, accounting for 45 percent of new transactions. "Notable pharma deals were completed by Covance, Dr Reddy's, Otsuka and Celgene, all of which took place in Central New Jersey," Medina noted. "Financial services firms also have been active, with large transactions involving Cenlar Federal Savings Bank and The Bank of Tokyo-Mitsubishi UFJ, Ltd."
Commensurate with leasing performance, overall vacancy in Northern New Jersey edged higher by 0.8 percentage points over the past three months, and now rests at 19.1 percent. The region's Class A vacancy rate recorded an even sharper rise, up 0.9 percentage points to 21.4 percent since year-end 2012. In Central New Jersey, however, overall vacancy remained relatively flat from year-end 2012, at 20.3 percent. Class A vacancies in that market dipped to 22.3 percent, from 22.9 percent at year-end 2012.
Conversely, Class A asking rents rose considerably in Northern New Jersey, as higher-priced space came online in the Hudson Waterfront and Morris County. At $28.85 per square foot, the Northern New Jersey Class A rental rate is up 3.4 percent year-over-year. Central New Jersey's Class A asking rents fell slightly since the year ended, dipping $0.17 per square foot to $25.45 per square foot. This was due, in part, to some higher-priced spaces in Princeton leasing up during the first quarter.
"Modest job growth has yet to generate substantial space requirements for corporate New Jersey," Medina noted. "We expect the pace to pick up through the year; however, our state has and will continue to lag behind other parts of the country in job recovery. As such, the office market likely will continue on its current, sluggish pace through the coming months as we wait for a real employment uptick."