Cushman & Wakefield Reports Signs Of Slow Recovery At Mid Year

Office, Industrial Markets Remain in Flux, Yet Pockets of Improvement Seen. End Quote

Newark, NJ (1888PressRelease) July 08, 2010 - The overall New Jersey commercial real estate market, while still somewhat colorless, is moving slowly toward an economic upgrade, according to Cushman & Wakefield Inc.'s mid-year research findings. Northern New Jersey's fundamentals remain stronger than those in the state's central counties heading into the second half of the year; the industrial sector appears to be gaining ground.

"While minimal decreases in the unemployment rate and a small uptick in net job gain are relatively minor, the changing climate illustrates preliminary signs of stabilization that could trend toward recovery," said Gualberto "Gil" Medina, executive managing director for the commercial real estate services firm's New Jersey operations. "We are seeing pockets of improvement throughout the market."

OFFICE UPDATE
Office fundamentals remain in flux in the state's northern counties. The overall vacancy rate, now 16.7 percent, increased by 0.3 percentage point from last quarter yet still represents a 0.3 percentage point year-over-year decline. Average weighted asking rents declined modestly year-over-year (-2.5 percent) to currently rest at $25.74 per square foot.

"Leasing activity is slightly down from last quarter; however, when comparing year-to-date activity from this same time last year to mid-point this year, it represents an approximate increase of 11.0 percent," Medina said. "As of mid year, northern New Jersey experienced new leases totaling 2.3 million square feet."

Morris County was home to 2010's two largest year-to-date leases. The Rockefeller Development Corporation will construct a 325,000-square-foot, build-to-suit North American headquarters facility for BASF in Florham Park. In Parsippany, global specialty pharmaceutical company Watson Pharmaceuticals signed a long-term lease for 148,708 square feet in two buildings at 400 Interpace Parkway.

"Central New Jersey is more fractured than its northern counterpart and continues to struggle with surplus space," Medina noted. "The contraction has been fueled by an oversupply of inventory and insufficient demand."

The overall Central New Jersey office vacancy rate, currently 21.8 percent, increased by 1.1 percent since second quarter 2009 and by 0.8 percent from first quarter 2010. The year-over-year overall weighted average asking rent experienced a decline, albeit modest (-3.03 percent), to $22.71 per square foot; this is the lowest rate recorded since third quarter 1999.

Still, Central New Jersey saw significant progression in new office leasing, with second quarter activity increasing nearly 35 percent from first quarter 2010. Two of the larger deals occurred within the Princeton submarket. In a consolidation shift, BlackRock, Inc. will relocate from 800 Scudders Mill Road in Plainsboro to 141,375 square feet at 1 University Square Drive in West Windsor. In Lawrence Township, engineering firm Parsons Brinckerhoff signed a 43,509-square-foot lease at 2000 Lenox Drive.

"While the economy slowly recovers, the majority of companies currently seeking new space will look for financially feasible deals by securing lower rental rates and flexible lease terms," Medina said. "At the same time, the recent depreciation of commercial property values continues to place financial pressure on landlords. Until there is a significant upturn in the economy, their regaining financial footing will prove to be challenging."

During the first six months of 2010, the office investment market statewide proved to be healthier than expected. "Sales activity in Northern New Jersey improved significantly, surpassing totals recorded at this time last year by more than 50 percent," Medina said. "Central New Jersey maintained its momentum as well, with 900,000 square feet of investment sales transactions, which is nearly 90 percent of totals recorded mid-year 2009."

The most notable sale involved Horizon Blue Cross Blue Shield of New Jersey purchasing 3 Penn Plaza East in Newark for $145.8 million. Somerset County was home to the top three Central New Jersey transactions during the second quarter. In Bernards Township, The Silverman Group acquired 150 Allen Road, a 191,319-square-foot, Class A property for $17.25 million. In Franklin Township, 220 Davidson Avenue (164,215 square feet) sold to NextBridge Group, and 265 Davidson Avenue (178,000 square feet) sold to Friendwell Property Investment Co.

Construction velocity statewide still lags from previous years. However, MetroTop Plaza II, the much-anticipated, 255,000-square foot, Class A office building in Woodbridge recently was completed and remains fully available for lease.

INDUSTRIAL RECAP
The industrial sector in New Jersey is beginning to feel some reprieve, according to Medina.

The second quarter direct triple net weighted average asking rental rate registered $5.92 per square foot, representing a $0.54 per-square-foot year-over-year decline, yet only a $0.20 per-square-foot decline from last quarter. "Despite the recent rental fluctuation, overall available industrial space for Northern and Central New Jersey combined remained fairly flat with a minimal year-over-year increase," Medina said. "This is primarily due to the absorption of existing space with new leases."

Central New Jersey recorded 3.5 million square feet of industrial lease deals, equivalent to totals recorded at second quarter 2009; Northern New Jersey experienced a 400,000-square-foot uptick from the same time period, recording 2.9 million square feet in total. Year-to-date, new leasing activity currently rests at 6.4 million square feet statewide, and remains on par with totals recorded last year at this time.

Fifteen new industrial lease transactions over 100,000 square feet closed during the second quarter. Among the largest, Equinix executed two leases totaling 324,169 square feet in Secaucus, signing on for 206,000 square feet at 800 Secaucus Road and an additional 118,169 square feet at 105 Enterprise Ave. In the Exit 8A submarket, Workflow One leased 200,000 square feet at 7 Costco Way in Monroe, while GMB leased 192,400 square feet at 100 Herrod Boulevard in South Brunswick.

Several notable renewals took place during the second quarter as well, including Volkswagen of America's full building, 935,000-square-foot, 12-year re-signing at 47 Station Road in Cranbury.

"Unlike the office market, early renewals have not become as commonplace in the industrial arena," Medina said. "Landlords appear to be less likely to lower their rents for a tenant with little term remaining on their leases. However, tenants continue to take advantage of the current market in the form of relocation to newer modernized buildings, rather than pay a similar rent for the more antiquated properties they currently occupy."

Industrial sales are regaining momentum, too, recording 2.9 million square feet of activity - a year-over-year increase of nearly 10.0 percent. The most significant user sale during the second quarter involved Middle Atlantic Products' $29.8 million purchase of 300-310 Fairfield Road in Fairfield from Commercial Realty Group. In Paterson, A.L.A. Realty Associates acquired 297 Getty Avenue from Citibank for $9.5 million.

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