2011 Garden State Office Market Performance Points to Recovery

Cushman & Wakefield Anticipates Continuation of Positive Trending. End Quote

Bergen-Passaic, NJ (1888PressRelease) January 16, 2012 - Performance within the Garden State's office markets during 2011 indicates that the commercial real estate industry is on the rebound, according to Cushman & Wakefield, Inc.'s New Jersey Research Services team. Gualberto "Gil" Medina, the commercial real estate services firm's executive managing director, noted that fundamental improvements in the state's Northern and Central counties-including significant jumps in office leasing activity-tie directly to strengthening job growth.

"While our unemployment rate remains at 9.1 percent, which is 0.5 percentage points higher than the national average, the Department of Labor and Workforce Development reported that the New Jersey's private sector employers added some 51,700 jobs in 2011," he said. "Just this week, well-respected economist James Hughes, dean of Rutgers University's Bloustein School, confirmed that the state is regaining vital traction. And while we have a long way to go, importantly, New Jersey has re-entered the 'top 10' list of U.S. states with the most jobs."

NORTHERN NEW JERSEY OVERVIEW
With the highest year-end total since before the recession, leasing activity in the state's northern counties reached 5.5 million square feet during 2011 and exceeded 2010 transactions (totaling 4.4 million square feet) by nearly 25 percent.

Realogy's 280,700-square-foot, fourth quarter lease at 175 Park Avenue in Madison led this activity. Additionally, textbook publisher Pearson Education committed to moving from Upper Saddle River to a 206,413-square-foot space in a proposed building on River Street in Hoboken. Among the largest lease renewals in 2011, Bank of America re-committed to 225,000 square feet at 95 Green Street in Jersey City, while Deutsche Bank kept 204,515 square feet at 2 Gateway Hall in Parsippany.

Yet despite increased market activity, overall vacancy rates have not yet begun to fall in Northern New Jersey, resting at 17.9 percent at year-end 2011, as compared to 17.3 percent 12 months ago. Direct average asking rental rates have become slightly worse as well, dropping $0.31 per square foot since 2010, to $25.81 per square foot today.

"While certain submarkets are performing exceptionally well-such as the Hudson Waterfront, where the overall vacancy rate is 6.5 percent and the direct average asking rent is $33.54 per square foot-several less productive regions weigh down the entire market," Medina said. Additionally, multiple large blocks of space came available in 2011, including two sublease spaces in Morris County totaling 439,281 square feet.

"The rise in leasing activity from 2010 to 2011 demonstrates that the recovery truly has begun in Northern New Jersey," Medina said. "Low rental rates will further motivate tenants looking for space, and vacancy rates should begin to gradually decline over time as a result."

Northern New Jersey investment sales activity also remained strong throughout 2011, and the fourth quarter saw several high-quality product sales. The highest-profile deal, in which Multi-Employer Property Trust purchased the 1 million-square-foot Newport Office Tower in Jersey City for $377.5 million, was the largest single-office sale in New Jersey history. Soon thereafter, Manulife Real Estate made its first deal in the tri-state area when it purchased the 696,876-square-foot 10 Exchange Place in Jersey City from Invesco Real Estate.

CENTRAL NEW JERSEY RECAP
Signs of recovery in Central New Jersey also are clear. "Leasing increased dramatically in 2011," Medina said. "Additionally, rental rates are gradually increasing, and vacancy rates are modestly, but steadily, decreasing."

Leasing activity jumped approximately 44 percent year-over-year, totaling 3.9 million square feet for 2011, as compared to 2.7 million square feet in 2010. This is largely the result of several leases in the pharmaceutical industry, especially Novo Nordisk's 475,000-square-foot transaction at 800 Scudders Mill Road in Plainsboro. Also among the largest, LifeCell Corporation leased 117,937 square feet at 95 Corporate Drive in Bridgewater.

Several significant renewals occurred throughout the year as well. This included Verizon Wireless at 30 Independence Boulevard in Warren (210,312 square feet), PNC Bank at 2 Tower Center in East Brunswick (131,363 square feet), and Qualcomm Flarion Technologies at 500 Somerset Corporate Boulevard in Bridgewater (125,472 square feet).

This activity all contributed to a 1.4 percentage point drop in Central New Jersey's overall vacancy rate, from 21.2 percent at the end of 2010 to 19.8 percent today. Additionally, direct average asking rental rates have risen to $23.54 per square foot, up $0.27 per square foot since the end of 2010 and $0.63 per square foot since mid-year 2011.

"Reinforcing these positive indicators, construction began recently on a 250,000-square-foot headquarters campus for Church & Dwight at 100 PrincetonSouth Corporate Center in Ewing," Medina noted. "This furthers the case that Central New Jersey is recuperating nicely."

Sales activity in Central New Jersey was modest in 2011, totaling 822,062 square feet. Still, notable transactions occurred at 333 Thornall Street (196,128 square feet) in Edison, which TA Associates purchased for $42.1 million, and at 110 Allen Road (197,475 square feet) in Bernards Township, which The Silverman Group acquired for $23.25 million.

Looking ahead, Medina expects that 2012 will see continued positive trending for New Jersey's office markets. "As the state's economy further stabilizes and improves, real estate activity can be expected to follow suit," he said. "Although we do not anticipate that leasing activity will increase dramatically this year, it likely will maintain its current pace. Availabilities will become more valuable commensurate with a slow decline in vacancies."

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