N.J. commercial market shows modest recovery.

The New Jersey commercial real estate market is continuing to show signs of improvement with steady absorption especially of high-end space, according to Finn Wentworth, executive, vice president/partner of Gale & Wentworth, one of the state's largest real estate organizations.

"Fueling the rebound is the considerable activity being generated by corporate users taking advantage of favorable pricing and interest rates to expand or move up to new space," explained Wentworth. "With a dwindling supply of better inventory and a growing shortage of large blocks of contiguous space, some high-end users may find there are no viable opportunities remaining by as early as the end of this year."

To illustrate this point, Wentworth reported that at G&W's Park Avenue at Morris County in Florham Park, occupancy of its 550,000 square feet has reached 93 percent with only some first floor units still available. Among its newest tenants is Schein Pharmaceutical, Inc., the nation's leading multisource pharmaceutical manufacturer, which has relocated its corporate headquarters from Roslyn, New York, to a 40,000-square-foot space.

While users are being forced to settle for second and third-choice locations, the scarcity of first-class product has already impacted pricing structures, Wentworth noted.

"Leasing concessions, like the amounts of free rents and tenant workletters, are on the decline," he explained. "Face rental rates for the Class A product are soon expected to begin rising with several major landlords already quoting rents in their premier buildings as high as $2 a square foot over the previous year."

According to Wentworth, another sign of recovery is the flourishing investment sales market. Its success is being driven, primarily, by larger users often seeking partnerships with experienced landlords to purchase and renovate older buildings and, secondly, by savvy investors who recognize the upside potential as the market rebounds.

"What started to appear in 1992 and has continued this year is the rapid sale of these properties, many controlled by the banks or insurance companies that had foreclosed on them while they sat vacant for several years," he noted. "The statistics are dramatic. Instead of deeds in lieu and Chapter 11's, we're now seeing sales transactions."

As examples, he cited Schering Plough's 150,000-square-foot Liberty Hall purchase, the sale of a 213,000-square-foot building at Overpeck Office Park to Daewoo, the purchase of 110,000 square feet in Fairfield by U.S. Healthcare as well as G&W's recent disposition, on behalf of Chase Manhattan Bank, of 717 Ridgedale Avenue in East Hanover. Formerly called the Ultimate Building, the 234,000-square-foot office and warehouse complex off Route 280 was purchased by National Prescription Administrators, Inc.

G&W also scored a major acquisition achievement with the purchase of Princeton Forrestal Village, a premier 600,000-square-foot mixed-use center, from the Bank of New York.

"Probably the largest commercial acquisition reported in the state this year, it has proven to be an absolute winner for us," said Wentworth. "Once a troubled property, largely because of a problem retail component, the Village has been successfully repositioned as a high-quality, factory-direct outlet center. Its office and hotel components are also thriving."

As Class A product continues to disappear, Wentworth believes tenants with large requirements will soon be forced to turn to the build-to-suit markets.

"Financially stable landlords with approved office sites, successful track records, and the ability to provide ongoing, first-class management will be well-positioned for success," he said. "If the inventory for quality office space dips to single digits in early '94, the near future may very well see some new construction and all the benefits it brings to the employment outlook and the growth of the New Jersey economy."