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New Jersey markets active despite economic concerns.

Marcus & Millichap Real Estate Investment Brokerage Company recently released its Office Research Report for the Northern/Central New Jersey market, which is active despite economic concerns, according to David E. Thurston, sales manager.

Economic growth in the 11-county region should continue its moderate pace through the first half of 1999. During the first 11 months of last year, New Jersey's economy continued to prosper. The state's main economic drivers - the pharmaceutical, biotechnology and telecommunications industries - continued to strengthen. The prospering economy, coupled with an immigration of companies, has helped lower unemployment, benefiting the region's office markets. During November 1998, unemployment dropped below the national average to 4.5 percent, the lowest level since 1990. The state gained 55,400 jobs year-to-date and more than 314,200 jobs since January 1994. In the Newark Metropolitan Statistical Area (MSA), 14,900 jobs were added since September 1997, while the Jersey City labor area gained 4,600 jobs.

Strong demand has spurred leasing activity throughout the region, driving overall availability lower and rems higher. The result has been a wave of new speculative construction and build-to-suit projects. The vacancy rate dropped to 10.4 percent, however, it should increase as new space becomes available.

Despite the turmoil on Wall Street, the region's availability rates continued downward, forcing rents upward. Overall, vacancies fell to 10.4 percent late last year, down from 11.6 percent during the second quarter of 1998. Class A availability dropped more than 2 percentage points to 6.1 percent, increasing demand for Class B and C properties.

Passaic County registered the highest availability, 26.5 percent, while Hudson County registered 7.1 percent. On the Hudson waterfront, where Class A vacancy dropped to 5.7 percent, new construction will likely more than double availability by mid-year.

The average annual asking rental rate inched upward to $23. l 0 per square foot, up from $20.75 during the second quarter. As vacancies dropped during the third quarter of last year, rents continued to inch upward. Overall, asking rents reached $23.10, with Class A space fetching in excess of $30 on the Hudson Waterfront and in the Millburn-/Short Hills submarket. Overall, Class B properties reached an $18.20 per square foot average, up 6 percent from year-end 1997. ln Newark, prime space averaged $25.10 per square foot, while Class B space fetched as high as $20.28 per square foot annually.

Fueled by office employment growth, office construction will remain active in 1999, with the Newark MSA adding 870,000 square feet.

Unlike Manhattan, where the uncertain financial terrain pulled the plug on many construction projects, New Jersey continues to experience a flood of new construction. During the first three quarters of 1998, developers broke ground on 45 new projects, with an additional 47 projects currently in the planning stages.

In the Newark MSA, which registered 21 new projects totalling approximately 720,200 square feet, the city of Newark, long a symbol of urban decay, is experiencing a host of renovation projects. Older, vacant buildings are being renovated and upgraded in order to attain higher rents. Overall, the MSA will register more than 2.1 million square feet during 1999 and 2000.

In the Jersey City MSA, where availability on the waterfront has been tight, more than 1.3 million square feet of Class A space is currently under construction, providing prospective tenants with large blocks of space which have been rare in Manhattan.

Selling prices of New Jersey buildings will moderate, declining 5 percent in response to the liquidity crunch, the Marcus & Millichap report projected.

Strong market fundamentals continued to stimulate investors during 1998. Through October, more than 47 buildings were sold, with 34 percent turning over during the third quarter. Most sales took place in Bergen and Morris counties, with Parsippany registering the most activity. Overall, Class A properties in prime locations averaged $185 per square foot with capitalization rates of 9 percent, while well-leased Class B properties averaged $105 per square foot with capitalization rates ranging from 9 to 10.7 percent.

Due to the liquidity crunch, however, sales volume should moderate, as sellers pull properties off the market while REITs and high leveraged buyers struggle to raise capital.
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Publication:Real Estate Weekly
Article Type:Industry Overview
Date:Apr 21, 1999
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