Leasing still slow, while sales rule state land

Real Estate Weekly, May 11, 2005

Cushman & Wakefield of New Jersey, Inc. has released its first quarter 2005 office and industrial market research statistics.

Leasing activity in Northern New Jersey remains on par with levels recorded during the first three months of 2004, registering 1.6 million s/f. However, improving labor market conditions are spurring increased tenant movement. Despite rising optimism within the real estate community, Northern New Jersey's overall vacancy rate remained at approximately 17% for the seventh straight quarter.

Sublet space, comprising 25% of total available product, continues to erode as terms expire and tenants renegotiate better deals to remain in place. Firms continuing to market sublease space in excess of 80,000 s/ f include Toys R Us, American Express, American Financial Resource Trust, NorthStar Travel Media, Metropolitan Life, Kraft and Polo Ralph Lauren. The largest direct product remains at BASF's Mount Olive facility (970,000 s/f), the Southgate Corporate Center in Morris township (530,000 s/f) and 1 Washington Park in Newark (402,000 s/f).

Improving market fundamentals in Central New Jersey indicate the beginning stages of a market recovery. Overall vacancy rates declined more than 1 percentage point since the end of 2004 to 20.2%. The impact of sublease space continues to decline, comprising 25% of the 13.5 million s/f of available product, down from 33% recorded 12 months earlier.

Central New Jersey leasing activity totaled nearly 1.3 million s/f during the first quarter of 2005, consistent with totals posted during the first three months of 2004. More tenants are looking towards options along the I-78 and I-287 corridors in Somerset and Middlesex counties.

The booming industrial marketplace in Northern and Central New Jersey finally cooled off slightly during the first quarter of 2005. More than 1.6 million s/f of available product was added to the market while leasing activity slowed. During the first quarter, 6.6 million s/f of leases were executed, a 20% decline from levels posted at this time last year. While 37% of the leasing occurred in Middlesex county, Northern and Central New Jersey each accounted for roughly the same activity.

Construction is progressing on 24 projects totaling 7.6 million s/f, including 13 warehouse/distribution facilities greater than 200,000 s/f within Central New Jersey. While Exit 8A remains the most active submarket, developers will continue to drive projects south along the turnpike to Exit 7A and 6A, where land is more readily available and rents are cheaper. At the Exit 8A market, 4.4 million s/f is under construction, including a 1.15 million s/f build-to-suit for Barnes and Noble, and facilities from Rockefeller Development (418,300 s/f), Heller Construction (1.3 million s/f) and Prologis (800,000 s/f). At Exit 7A, a 600,000 s/f build-to-suit facility for McMaster-Carr Supply Company is nearing completion.

Continuing its momentum from 2004, investment sales activity kept its torrid pace during the first quarter as investors' mounting appetite for stable trophy properties with high credit tenants resulted in more than 20 properties totaling 4.2 million s/f changing ownership. Mack-Cali acquired the 1.2-million s/f 101 Hudson St. in Jersey City from LCOR and 4, 5, 6 Century Drive (279,000 s/f) in Parsippany from the Gale Company. Invesco Realty Advisors acquired 120 Eagle Rock Ave., Rockaway 80 Corporate Center and the Meadows Office Complex, totaling nearly 1 million s/f. In Saddle Brook, Park 80 West I & II (483,000 s/f) traded for the second time in three years, snapped up by L&L Acquisitions. In Madison, Reckson Associates acquired 1 Giralda Farms (150,000 s/f) from Schering Plough and 7 Giralda Farms (203,000 s/f) from Morgan Stanley.

Boosted by a late surge of investment sales activity in Central New Jersey, 3.6 million s/f of properties changed ownership during the first quarter of 2005, nearly eclipsing the sales totals recorded for all of 2004. Three transactions in excess of 800,000 s/f occurred, including Allegiance Realty's acquisition of the Atrium Drive portfolio (300, 400, 500, 700 Atrium Drive) and 379/399 Campus Drive from the Archon Group, representing a total purchase of 1 million s/f in the suddenly resurgent Upper I-287 corridor.

In one of the state's most significant office deals in recent memory, Verizon agreed to buy the 135-acre, 1.29-million s/f former AT&T headquarters campus in Basking Ridge, owned by Pfizer, for more than $100 million. Lured by a $64 million BEIP grant, Verizon chose New Jersey over Virginia and has plans to extensively renovate the new complex--which will reopen as Verizon Center --and to begin moving 2,800 employees here by year's end.

In Holmdel, Mack-Cali acquired the former Prudential Property & Casualty Insurance Co. building located at 23 Main St. for $23.5 million. Metropolitan Life Insurance also committed to Franklin township, purchasing 300 Davidson Ave., the 414,486 s/f building formerly occupied by Merrill Lynch. Investment firm W. P. Carey & Co. acquired the 891,000 s/f Piscataway office campus of Telcordia Technologies, Inc. in a sale-lease back valued at $119.3 million.