NJ waterfront cries out for spec construction.
As if that weren't enough, Mack-Cali just returned 300,000 square feet of renovated space back onto the market when a tenant vacated - and it stayed there for about the time it takes to say "I'll take it!" You won't often hear a real estate insider say this, but we need more spec construction, and fast!
Real estate moves quickly in New Jersey, partly because of the incredibly high demand, and partly because of the high number of subleases. So many mergers and acquisitions are taking place, in the financial services industry and elsewhere, and the consolidating companies put their excess real estate on the market, but it never stays available for long. Today, we're seeing a lot of communications and computer-related companies - start-ups and young, growing companies - coming into the New Jersey market, and they like sublease space, because they can get into a three- or four-year deal and then be in a position either to expand quickly, if the business does well, or get out quickly if it doesn't.
Except on the Waterfront, the "typical" tenant doesn't favor 10- or 15- or 20-year leases. That makes the market one of the toughest in the country to stay on top of.
In a market like this, a broker doesn't need to make any unusual moves. I'm not revising my game plan in any way; I'm just trying to keep up with all the business I have. People call into our offices blind, these days, simply saying "I need space." It's been many years since I've seen that.
Developers are now finding money available to finance sensible spec projects. I'm surprised at the ease with which buyers have found financing lately for buildings that most people wouldn't think were worth the risk.
If another spec project comes along, I'd urge the developer to pay attention to technology. It's not just info-tech and new media companies that insist on modem, fiber-optic and telecommunications wiring. Many, many industries must have appropriate wiring that will let them do business over the Internet at lightning speed, and old-fashioned phone lines won't do that. Demand for bandwidth continues to grow geometrically. If builders ignore this demand, it will be at their peril - not just in New Jersey, but anywhere in the developed world.
In addition to the Waterfront, Newark is probably New Jersey's most interesting office leasing market right now, partly due to the state's current policy of helping New Jersey's inner cities, but mostly because of interest and determination from the private sector. I predict you'll see more development in downtown Newark, and around Newark Airport, before you see much more buildup of suburban areas.
Could the real estate market turn downwards? It's hard for me to see how it could take a serious dive anytime soon. Sure, if the stock market goes down, people will get nervous. Not because the economy's bad; the economy's great, and inflation is as low as I can remember it ever being. But if public companies need to push their stock prices up, they'll let a few employees go, and thus need less space. That could lead to a rise in vacancy rates, but not a serious one.
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|Title Annotation:||New Jersey; First Quarter Review|
|Publication:||Real Estate Weekly|
|Date:||Apr 7, 1999|
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