NJ industrial and office markets show slower improvement.

The Society of Industrial and Office Realtors New Jersey Chapter reported that the demand for industrial space in New Jersey has shown continued but slower improvement since the uptrend started in the summer of 1993.

Office building vacancies also continued to decline in all areas. This improvement trend is anticipated to continue through 1999 due to continued economic expansion within New Jersey, although at the restrained pace. New construction is expected to continue, also restrained, where vacant land is available and financing can be obtained.

NJ Society Chapter President Seena Stein, president of Newmark Partners, Inc. of Rutherford, NJ, moderated the annual press conference on January 13th at the Highlawn Pavilion Restaurant in West Orange, NJ to debut the Society's 1999 national market guide entitled "Comparative Statistics of Industrial and Office Real Estate Markets," published jointly with Landauer Associates. The guide gives a comprehensive analysis of industrial and office space activity in 1998 for more than 129 market areas in the USA, Canada and Mexico, and a forecast for 1999.

The report shows that office markets of the United States continue to recover as the economy continues to be strong. Vacancies for 1998 in the USA were posted at 8.8 percent of the 3.5 billion square feet of office space, vs. 9.6 percent last year, with substantial new construction and growing interest in downtown areas.

The Mid-Atlantic states of New York, New Jersey and Pennsylvania led the nation in net absorption with 25.9 million square feet. The availability rate for New Jersey office space ended the year at 11.2 percent. The national industrial vacancy declined nearly half a percentage point, from 7.1 percent to 6.7 percent of the total 11.3 billion square feet, up from last year's 10.5 billion square feet. Absorption of 307 million square feet was slightly less than last year's 337 million square feet. The Mid-Atlantic states still have an industrial vacancy above 10 percent, the highest in the nation. New Jersey remained almost unchanged at 7 percent in 1998 vs. 7.1 percent the year before.

The outlook to the year 2000 remains strong for both property types, though potential clouds are visible on the horizon. The continuation of the strong office sector depends on whether the move towards oversupply continues, particularly in suburban areas. The continued strength in industrial depends on the degree that economic turmoil in emerging countries dampens business activity in the U.S.

New Jersey Market Conditions Highlighted

The overall vacancy in New Jersey at the end of 1998 was 7 percent for industrial, vs. 7.1 percent last year, and 11.2 percent for office vs. 12.3 percent last year. The importance of the New Jersey markets was stressed, as New Jersey has a major portion of the nation's total space inventory.

Industrials Remain Unchanged

Charles Klatskin, SIOR, president of the Charles Klatskin Co., Inc. of Teterboro, revealed that in the Northern New Jersey industrial market, consisting mostly of older space and little land for new construction, remained almost unchanged at 7 percent availability. There was little new construction, manufacturing continued its slow decline and the trend to rehab or demolish older outdated buildings continued, especially changing to retail and residential uses. As fast as space was taken off the market by deals, companies vacated space, which kept the total available space almost unchanged. The market ended in equilibrium, with rents and sales prices increasing only slightly during 1998.

George Molloy, SIOR, president of GM Realty Advisors, Inc. of Bridgewater, NJ, reported industrial in Central Jersey showed a 7.9 percent vacancy rate, with 24.5 million square feet vacant. This is up from 7.1 percent last year, when the year ended with only 19 million square feet available. Eighty-five percent of the deals were for warehousing; 10 percent for manufacturing; and 5 percent for high-tech/R&D uses. Klatskin noted that near Turnpike Exit 8A, where he has developed buildings for many years, prices have dropped around 20 percent due to over-building by the institutions and REITs, and it no longer makes financial sense to build a quality spec building. Central New Jersey includes Mercer, Monmouth, Somerset, Union, Morris and Middlesex counties.

Jeffrey Licht, SIOR, from the Mertz Corporation of Mt. Laurel, NJ, noted Southern New Jersey industrial vacancy hardly changed, down to 4.5 percent from the previous year's 4.6 percent. A major purchase of 650 acres by Whitesell Construction in Burlington County eliminated the proposed food distribution center being planned for years. The good news is that it will be replaced by up to 8 million square feet of new industrial space over a projected 10-year build-out, and Licht predicts that Burlington County will dethrone Gloucester County for the industrial development title by 2000. Developers are confidently cautious.

Offices Show Slight Gains

Stein noted that Northern New Jersey vacancy dropped to 11.7 percent, down from the 11.8 percent vacancy in 1997 and the 16 percent in 1996. A total of 13.7 million square feet remains available in Northern New Jersey. Somerset County achieved the highest rents, exceeding the Hudson River waterfront. This was due to much new construction lowering prices along the Hudson, but she expected the Hudson Gold Coast to regain the highest rents title this year as the new space is rented and competition dwindles.

Sales during the first half of the year were at very high prices, mostly by REITs and institutions. After the capital market was shocked mid-year, office sale prices dropped and became more realistic, based upon actual rentals and not "tulip bulb" fever.

Richard Heilman, SIOR, of Sitar Co.-ONCOR International of Iselin, NJ, sizing up the office market in Central NJ, noted that 1998 saw 3.19 million square feet of office space absorbed, about double the 1997 rate. Overall vacancy ended at 11 percent, almost the same as last years 10.8 percent. Institutional buyers remained very active, as lease and sale prices continued to rise. Much of the activity came from local firms expanding.

South Jersey office space vacancies fell sharply to 10 percent vs. last year's 16 percent, reported Rebecca Ting, SIOR, of the Mertz Corp. of Mount Laurel, NJ. With little new construction, the existing inventory was drawn down, with most activity in Burlington County. Institutions and REITs finalized 21 major sales vs. 23 the previous year, as sale prices stabilized. Fifteen percent of the total Southern New Jersey office market is now owned by REITs.

Anticipating large blocks of existing space to hit the market in 1999, developers are waiting to see what happens before starting their new, ready-to-go spec buildings. Ting's motto last year was, "Looking Great for '98" and this year is "Doing Fine in '99."

A copy of the SIOR Market Guide report is available from the SIOR National Headquarters in Washington, D.C. by calling [phone].