NJ office markets retain strength as industrials thrive.

The northern and central New Jersey office market has maintained its strength through the first half of 1999, while the state's industrial market continues to thrive, according to the mid-year report released by Cushman & Wakefield of New Jersey's Research Consulting Services, which tracks more than 630 million square feet of office and I billion square feet of industrial space in New Jersey, New York and Connecticut.

Office Markets

The northern and central New Jersey office market closely mirrors last year's mid-year status, according to the Cushman & Wakefield report. With a total inventory of more than 143 million square feet, the office market includes just over 18 million square feet in availabilities, representing a low 12.6 percent vacancy rate. More than 5 million square feet of year-to-date leasing reflects continued demand in the region.

"The strong national and state economies have prompted a significant amount of new office construction to help meet tenant growth and expansion requirements," noted Donald P. Eisen, Cushman & Wakefield's executive managing director for the New York Area. "Currently, 22 facilities under construction in the state will add more than 3 million square feet in inventory." This growth is mainly concentrated within the Hudson County Waterfront, 78/287 Corridor and Princeton submarkets.

During the second quarter, 10 lease transactions over 85,000 square feet were completed, with six in Hudson County alone. This includes a 266,560 square-foot lease by PaineWebber and a 136,500 square-foot lease by U.S. Trust, both at Newport Office Center III in Jersey City. In addition, American Express signed a lease for 193,000 square feet at 90 Hudson Street, also in Jersey City. Both properties began as speculative construction projects and will be 100 percent leased upon their completion later this year.

"The success of new waterfront projects can be partially attributed to escalating rental rates across the river in Manhattan," Eisen said. "With a Class A average rental rate more than $7 less per square foot, and a number of available state and local incentive programs, Hudson County continues to attract companies from New York City."

In another trend, the amount of available sublet space has increased substantially during the past several years. Today, sublet space comprises 17 percent of the state's overall availabilities, up from 8 percent in 1993. Currently, five blocks of sublet space over 100,000 square feet are available in northern and central New Jersey, concentrated mainly within Hunterdon, Morris and Somerset counties.

"The outlook for the remainder of the year is positive," Eisen concluded. "As firms continue to expand within and relocate to New Jersey, vacancy rates will likely remain stable. And provided that the economy and Wall Street continue on their positive courses, available space will decline even further, with rental rates rising accordingly."

Industrial Market

Healthy industrial market activity during the first half of the year included more than 14.3 million square feet in leasing and sales in northern and central New Jersey, according to the Cushman & Wakefield report. With an estimated inventory of nearly 721 million square feet, the market registered a low 7.6 percent estimated vacancy rate at mid-year. The high-tech sector showed the largest gains in average asking rentals, jumping 25 percent, or $1.50 per square foot, from mid-year 1998.

These positive market factors prompted an 11 percent increase in construction activity from last year, bringing the total for projects underway to 3.1 million square feet. The. bulk of new warehouse distribution facilities are concentrated in Middlesex County, while the majority of high-tech building is occurring in Bergen County, within the Route 17 North/Garden State Parkway submarket.

The trend of companies relocating into newer, more efficient facilities has resulted in overall available space in the market rising 4.8 million square feet from last year. "Of the 55 million square feet in the market, only 24 blocks over 100,000 square feet have ceiling heights of 24 feet or more," Eisen noted. "Many of these obsolete properties in prime locations will be redeveloped or considered for alternative use in the coming months."

The state's most active submarkets include the Exit 8A and Edison markets in Middlesex County, according to the Cushman & Wakefield report. Sixteen lease transactions totaling more than 2 million square feet within Exit 8A market, and 25 transactions totaling 1.8 million square feet in Edison comprised 30 percent of northern and central New Jersey's total first half leasing activity.

"With an abundance of flat land, excellent highway access and a prime central location, Exit 8A has become the preferred location for warehousing statewide," Eisen noted. "The Edison market is also strong, with a number of new construction projects adding to its scope."

The outlook for the industrial real estate market remains positive through the end of the year, supported by continued low unemployment and a healthy economy. "Already this year, 1.6 million square feet in new construction has been completed, and 10 additional projects will be finished by year-end," Eisen said. "This much-needed fresh inventory will continue to update the state's aging industrial base, further priming the market for continued prosperity."