NJ industrial and office markets show improvement.

The Society of Industrial and Office Realtors (SIOR) New Jersey Chapter reported recently that the demand for industrial space in New Jersey has shown continual improvement since the up-trend started in the Summer of 1993. Office building vacancies also continue to slowly decline in all areas. These moderate growth trends are anticipated to continue through 1996 due to lack of new construction and positive absorption.

SIOR-NJ Chapter President Kenneth F. Crimmins, president of The Blau & Berg Company of Springfield, NJ, moderated the annual press conference at the Highlawn Pavilion Restaurant in West Orange to debut SIOR's 1996 market guide entitled "Comparative Statistics of Industrial and Office Real Estate Markets." The guide gives a comprehensive analysis of industrial and office space activity in 1995 for more than 124 market areas in the USA, Canada and Mexico, and a forecast for 1996. The report shows Pittsburgh with the highest industrial vacancy at 23.5 percent, and the lowest three, all below 1 percent, being Milwaukee, Wisconsin; Chattanooga, Tennessee; and Fort Worth, Texas. New Haven, CT showed the highest office vacancy at 26 percent, and the lowest were San Mateo, CA at 3.2 percent, and Gainesville, FL with 3.5 percent.

New Jersey conditions were also highlighted during the conference. The overall vacancy in New Jersey at the end of 1995 was 9 percent for industrial and 16.3 percent for office, compared to a nationwide 7.3 percent for industrial and 13.9 percent for office.

David T. Houston, Jr., SIOR, of the David T. Houston Co. of Bloomfield, NJ, revealed that Central New Jersey's Mercer, Monmouth and Middlesex counties absorbed 90 percent of the new industrial construction in the State, mostly very large distribution buildings over 250,000 square feet. Due to the lack of land in the northern counties, Central Jersey will continue to experience the largest expansion of jobs, houses, industrial and commercial space for the foreseeable future. Houston noted that sale and rent prices were up 6-10 percent over 1994. Construction costs rose significantly for the first time in many years due to upgrading of construction codes, including earthquake protection features, higher material costs, and fewer contractors due to the recent recession.

Roy Lucas, SIOR, of James E. Hanson Co. of Hackensack, NJ, disclosed that Northern New Jersey industrial vacancies had dropped below 10 percent for the first time since the recession ended. This area of older, low-ceiling buildings continued to lose manufacturing jobs, and local firms continue to expand outside the area due to lack of land or high cost of sites. Many older facilities are being altered, particularly for retail use, and this adaptive re-use and renovation trend is expected to continue. Rental rates generally were $5 to $5.25 per square foot per year net, and continue to increase slowly.

Mal Shreibman, SIOR, from the Mertz Corporation of Mt. Laurel, NJ, noted improvement in Southern NJ industrials, with vacancy down to 5 percent from the previous year's 5.5 percent, but a slowdown became evident mid-year. Prices increased 10 percent to $3.25 to $4.75 net. Short-term leases no longer dominate, and 3 to 5-year leases set the pace. New spec construction, many leasing up before ground-breaking, has been evident and demand has outpaced available product larger than 100,000 square feet. Construction costs increased to $32 to $35 per square foot, up 5 percent over 1994 costs.

William Cariste, partner of JGT of Woodbridge, NJ, reviewed the office market in Northern and Central New Jersey, noting 1995 was a year of declining vacancy rates and of available space, continuing the trend started in 1991. The office vacancy in these markets is 12 percent in central business districts and 21.2 percent in the suburbs, averaging 16 percent overall. While an improvement over the past, the vacancy rate still is troublesome and hinders new office construction, which remains stagnant. Also of concern is the inventory of available sub-lease space, now at a five-year high. Average rents bottomed in mid-1994 at $18.50 per square foot per year gross, and have risen to $18.95 today. Rents range from $21.11 for Class A buildings to $15.57 for Class C, and most vacancies are in the B and C structures. Cariste projected 1996 would resemble 1995, showing slight and slow improvement.

South Jersey office space vacancies fell to 20 percent, a modest improvement over last year's 22 percent, reported Mal Shreibman, SIOR. Rents range from $22 per square foot for Class A to $10 for Class B buildings. Transactions in the 2,000 to 4,000 square foot size were the most common, as 1995 yielded a net absorption of 200,000 square feet. Sales were generally at prices below replacement cost, but this is expected to end in 1996. Most office facilities in South Jersey, Shreibman commented, are now owned by institutions and REITs, due to foreclosures and purchases. The high vacancy continues to halt new construction, which should result in continued absorption, as demand is expected to continue at the current rate.

Crimmins, Cariste and Houston all expressed that citizens and businesses in New Jersey are being scared by the constant media emphasis on large announced job layoffs and cutbacks. Pessimism and lack of confidence has resulted, which affects business decisions. The loss of thousands of jobs is important and always a headline-maker, but the gain of a few jobs here and there by small companies never makes the news. This is happening hundreds of times each month and the New Jersey economy is really much better than the gloomy perception displayed by the media, the executives said.

A copy of the SIOR Market Guide report is available from the SIOR national office, Washington, DC, [phone]. For a copy of the SIOR "Comparative Statistics" report, contact Chapter President Kenneth Crimmins, president of The Blau & Berg Company in Springfield, NJ, at [phone].