NJ office market remains strong into 2000.
Even if, by some miracle, demand for office space were to come to a standstill, most of the space is locked up in long-term leases. We could see a slight slowdown, but a serious downturn is almost inconceivable. Demand is so high, and space is so tight, that a little dip in the market isn't going to worry anybody.
It's more likely that the market will stay strong for a while longer, although it won't be quite as tight as it has been for the past couple of years. The Exxon-Mobil merger is bound to put some space back onto the market - several hundred thousand square feet - and nobody can foresee how quickly that space will be absorbed. Certainly that merger is likely to lead to a slowdown in speculative construction in the Somerset/Morris County submarket, but I expect to see spec projects continue elsewhere. LeFrak and Hartz have committed to new buildings on the Waterfront, and I'm sure that this space is going to fill up very quickly, long before the buildings are completed.
I don't think leasing activity is going to slow down very much. Several major deals are on the verge of being announced. The big stories in 1999 were IDT's move into the Mutual Benefit Life Building in Newark, the leasing of a couple of older buildings, such as the rehabbed Colgate building in Jersey City, and the leasing of the Prudential building in South Plainfield. That last-named deal was a possible indicator of where we are in the cycle, since that is not our hottest office market.
The Waterfront, as it usually has done in the past few years, is leading the other New Jersey markets and will probably continue to do so for a long time. Another market that's showing renewed and growing strength today is Newark, which has really been on a roll in the past few years. It's wonderful to see how Newark has come back from many years of hard times. IDT is moving its corporate headquarters into 450,000 square feet at the former Mutual Benefit Life Building: a 20-year lease, and the first move of a corporate headquarters into Newark in as long as I can remember.
The Gateway project is another big story coming out of Newark. Tishman Speyer and Gale & Wentworth recently bought three of the four Gateway buildings - a total of 1.3 million square feet - which indicates that they think Newark will be a long-term player.
According to our Third Quarter market report, demand for office space in New Jersey has outstripped supply for eight straight quarters now. Rents increased more than five percent during the past year alone, and rose to an average of $20.36 per square foot in the third quarter of 1999. Net absorption of 761,601 square feet pushed the availability rate down to 12.5 percent from 13 percent.
This is due to two factors. First, there's New Jersey's favorable business climate: economical rents, close proximity to Manhattan, advantageous tax laws, educated labor force, affordable housing and other benefits. Second, there's New Jersey's high quality of life: a huge variety of entertainment and retailing, good schools, good transportation. These circumstances are attracting new office tenants, and many tenants who've been here for a while are expanding. This has been going on since mid-1997, although the desire for space in New Jersey had been pent-up for a considerable time.
Lately, space has been occupied as quickly as it can be built. We've got an inventory of about one million square feet, and in some submarkets, the Waterfront in particular, you can hardly find enough vacant space to hold a desk and a chair. For the past couple of years, we were begging for some speculative construction; we finally got some, and we found that the new space would be leased up before the steel had arrived on the construction site.
Central New Jersey has been doing well, but for somewhat different reasons than those which drive the Northern New Jersey markets. The central part of the state seems to be attracting technology companies, partly because of the tempting tax benefits and partly because of the exceptionally well-educated workforce in markets like Princeton and the Brunswicks. Total weighted average asking rents in the region increased to $19.94 from $19.85 per square foot. Direct rents (rents not including subleases), which increased to $19.01 from $18.88 per square foot, contributed greatly to this rise. Total available space increased 2.3 percent, whereas it decreased 2.6 percent last quarter. The availability rate, however, remained constant at 13.1 percent, reflecting a proportional increase in new inventory coming onto the market in the form of newly-constructed buildings.
Northern New Jersey again reported increased rental rates (to $20.62 per square foot), while its availability rate dipped to 12.2 percent from 12.9 percent, as 958,065 square feet was absorbed. The Waterfront's asking rent dropped to $25.95 per square foot. That may be surprising to some observers, considering the area's recent Class A construction boom and the market's perennial popularity with credit tenants, but the figures are deceptive. The higher-rent Class A buildings that are right on the water are chock-full; the slight increase in vacancy is attributable to the Class B and C product, situated away from the water.
In all of Northern New Jersey, sublet asking rents increased almost 2 percent to $23.11 per square foot. Since 1998, sublet rents jumped 15 percent, despite the sublet market's increase in available space, which has ballooned 33.6 percent in the last year to 2,470,806 square feet. The direct asking rents edged up to $20.12 from $20.04 per square foot. Although direct asking rents rose in seven Out of the 11 submarkets that comprise the Northern New Jersey region, the overall net increase was slight due to the unusual conditions in the booming Waterfront submarket.
To sum up, we're in an unpredictable situation right now. Most likely is a slight flattening, a stabilization, but it may be that we've learned from the 1980's, and can avoid a serious downturn in the coming cycle.
|Printer friendly Cite/link Email Feedback|
|Publication:||Real Estate Weekly|
|Article Type:||Brief Article|
|Date:||Jan 26, 2000|
|Previous Article:||Facade inspection filing deadline is March 1st.|
|Next Article:||Strong economy fuels NJ market.|