Slow Economic Recovery Continues to Impact New Jersey's Office and Industrial Real Estate
EAST RUTHERFORD, N.J, Feb. 13, 2013 - New Jersey's office and industrial markets showed an uptick in activity in 2012's fourth quarter, and while it wasn't enough to completely offset a lackluster year in leasing and investment activity, particularly in the office sector, it did provide a potential prelude to a better 2013. However, both the 2012 performance and the prospects for 2013 continued to be tempered by an economy slow to rebound.
"New Jersey's economic recovery remained lackluster in 2012," confirmed Gualberto "Gil" Medina, executive managing director of Cushman & Wakefield, Inc. in New Jersey. "For example, while the unemployment rate edged downward in the fourth quarter, it was still at 9.6 percent, well above the national average of 7.7 percent."
Modest job growth has yet to generate substantial space requirements for corporate New Jersey. The job growth that has occurred has been in the professional and business services, trade, transportation and utilities sectors in Northern New Jersey, and in the educational, health, professional and business services sectors in Central New Jersey, according to the commercial real estate services firm.
Demand for office space in Northern New Jersey did increase in the fourth quarter of 2012, topping third quarter activity by 44.2 percent, driven by the financial, insurance and life sciences industries, according to Cushman & Wakefield. Bergen and Morris counties experienced the strongest performances.
For the full year, however, demand trailed 2011 by 32.4 percent. "The total of 3.7 million square feet leased year-to-date was a 10-year low," said Medina. "Large firms have been less inclined to spend capital on real estate costs and, as a result, have opted to stay in place. Renewals, totaling 2.9 million square feet, accounted for almost 44 percent of all leasing activity. Some of the larger renewals have included PSE&G in Newark, UBS in Weehawken and Morgan Stanley in Jersey City."
Northern New Jersey ended 2012 with a vacancy rate of 18.3 percent, a recent high, reflecting the low leasing activity and a number of corporate dispositions, including AIG's shedding of 150,000 square feet at 90 Hudson Street in Jersey City. As a result, average rents continued to trend downward, dropping slightly from the third quarter to the fourth to a recent low of $25.59 per square foot.
Largest leases for the year included Biomet's 102,224-square-foot transaction at 399 Jefferson Road in Parsippany; The Bank of Tokyo-Mitsubishi's 100,274-square-foot expansion at Harborside Financial Center III in Jersey City; Prudential Real Estate Investors, 95,238 square feet at 7 Giralda Farms in Madison; and Citigroup's 92,554-square-foot sublease at 480 Washington Blvd., Jersey City.
The final months of 2012 did see the strongest investment activity in four quarters in Northern New Jersey. But while the number of investor sales rose as 2012 progressed, the total volume lagged 2011 by 2.1 million square feet. Largest sale transactions were Cole Real Estate Investments' $53 million acquisition of 8 Sylvan Way, Parsippany, and Bayer Corp.'s $45 million acquisition of 67 Whippany Road in Whippany.
In Central New Jersey, year-to-date leasing activity trailed 2011 by 17.2 percent. "As in Northern New Jersey, many firms decided to sit on the sidelines," said Medina. "Significant corporate expansions were scarce, with companies again reluctant to spend capital on real estate."
As was the case in Northern New Jersey, the Central region did gain momentum at the end of the year, with fourth quarter leasing activity topping the third quarter by 20 percent, according to Cushman & Wakefield. Much of the year's leasing velocity was focused on the I-78 corridor and the Woodbridge/Edison submarket, and was driven by computer/information services, pharmaceuticals and insurance firms.
"Many larger tenants renewed their leases throughout the year, taking advantage of current rental rates and concession packages," said Medina. Some of the larger renewals were United Healthcare, SES Americom and Barnes & Noble.
As year-end approached, average asking rental rates in Central New Jersey inched higher to $23.80 per square foot, an increase fueled by higher-priced class A space added to the marketplace. Overall vacancy was up 0.5 percent from one year earlier, the result of a two percentage point rise in the third quarter. At year's end, the market-wide vacancy rate stood at 20.3 percent.
Significant 2012 lease transactions in Central New Jersey included Brother International, 101,754 square feet at 200 Crossing Blvd., Bridgewater; Allergan, 93,000 square feet at 200 Somerset Corporate Blvd., Bridgewater; and EisnerAmper, 87,083 square feet at 115 Wood Avenue South, Iselin. Largest sales were AT&T Middletown NJ's $107.8 million acquisition of 200 Laurel Avenue in Middletown; and TA Realty's $73 million acquisition of 170 Wood Avenue South in Iselin.
"As economic uncertainty decreases, 2013 should fare better than 2012," said Medina. "However, New Jersey has and will continue to lag behind other parts of the country in job recovery, and corporate expansions won't increase until there is more substantial employment growth."
The past year saw manufacturing continue to struggle, but its impact on the overall market was offset by gains in warehousing/distribution, fueled by rising retail sales. The result for Northern and Central New Jersey was modest leasing activity of 17.7 million square feet, according to Cushman & Wakefield. That number was down 24.4 percent from 2011 but exceeded the five-year rolling average.
In Northern New Jersey, activity totaled seven million square feet, topped off by a fourth quarter that posted the highest quarterly total since Q1. Fueling fourth quarter demand were 740,000 square feet of leases by Imperial Bag & Co. and Peapod at the under-construction Pulaski Distribution Center in Jersey City.
Central New Jersey saw 10.6 million square feet of leasing activity in 2012, the bulk of it in the first half of the year and much of it in the Lower I-287 and Exit 8A submarkets. Largest leases include Global Equipment, 500,102 square feet, and IDS, 499,898 square feet, both at 24 Applegate Drive in Robbinsville; Dotcom Distribution, 443,421 square feet at 200 Liberty Way in Cranbury; and Kenco Logistics, 400,714 square feet at 100 West Manor Way in Robbinsville.
Largest sales for the year included Cohen Asset Management's acquisition of a 2.5 million-square-foot portfolio in Bayonne, Edison, Elizabeth and South Brunswick; CenterPoint Properties' $29.7 million acquisition of 377 Roosevelt Ave. in Carteret; and P.C. Richard & Son's $24.5 million purchase of 2-8 Germak Drive in Carteret.
The year-end industrial vacancy rate was 10.1 percent in Northern New Jersey and 9.1 percent in the Central region. Average asking rent across both regions rose 2.1 percent year-over-year, rising to $5.78 per square foot and continuing to edge higher in the more prominent submarkets.
"The New Jersey industrial market is expected to continue to outperform the office market," said Medina. "Occupancy levels are expected to further advance, especially in such submarkets as Exit 8A and 7A. In the port region, the raising of the Bayonne Bridge and dredging of the harbor to accommodate the next generation of larger cargo vessels indicates that activity will remain strong in the coming years."