New Jersey industrial, office markets improving

Real Estate Weekly, Feb 16, 1994

The Society of Industrial and Office Realtors (SIOR) New Jersey Chapter has reported that the demand for industrial space has accelerated since the summer of 1993, and net space absorption is 30 percent above last year. Office building vacancies have slowly declined in most areas and this trend should continue through 1994 due to lack of new construction and positive absorption.

SIOR-NJ Chapter President WIlliam Cariste, of Jacobson, Goldfarb & Tanzman, Woodbridge, moderated a press conference at the Highlawn Pavilion Restaurant in West Orange to debut SIOR's 1994 market guide entitled "Comparative Statistics of Industrial and Office Real Estate Markets." The guide gives a comprehensive analysis of industrial and office space activity in 1993 for more than 120 market areas in the USA, Canada and Mexico, and a forecast for 1994.

New Jersey conditions were highlighted during the conference. David T. Houston, Jr., SIOR, of the David T. Houston Co., Bloomfield, revealed that the absorption rate for industrials has doubled since mid-1993, and Northern and Central areas of NJ reduced net inventory by 17 million square feet in 1993. Warehouses accounted for the bulk of transactions while manufacturing continued to languish. Lack of new speculative construction has forced the vacancy rate down. 1994 will see inventory continue to tighten and prices increase, with a balanced and strong industrial market resulting by the end of this year. Build-to-suit construction, not significant since the 70s when compared to speculative developments, will become a substantial factor during 1994, as existing inventories of space are committed to at historically low prices.

Mal Shreibman, SIOR, from the Mertz Corporation, Mt. Laurel, noted that south NJ, particularly the counties of Camden, Gloucester, and Burlington, for the most part reflected the north Jersey experience. Industrials improved significantly with vacancy down to 13 percent, representing 3.58 million square feet. Prices have not increased from the lows reached during the past few years, remaining below replacement cost, and short term leases have been the trend, with most activity in the 15,000 to 40,000 square-foot building size. Expanding local firms accounted for most of the absorption in southern NJ.

Houston accounted for the industrial success by noting that New Jersey began to shed its anti-business reputation over a year ago, including changes to the ECRA law, and the now evident market improvements should accelerate under our new Governor. Lenders have again returned to the commercial real estate market and mortgage availability is much improved over 1992. Manufacturing has not benefitted from the upswing and our State must continue to confront the loss of quality, high-paying manufacturing jobs being replaced by lower wage retail and distribution jobs. Houston expects by the end of 1995 that total industrial available inventory in NJ will fall to 45 to 50 million square feet, the lowest since the early 80s, prompting new construction and redevelopment of older facilities and cities.

Peter Geiselman, Editor of the Sitar Report, reviewed the office market in northern and central NJ, noting 1993 was a year of firming up and stabilization. 1993 net absorption was 1.4 million square feet. which was less than the 3.4 million in 1992, but '92 included many large pre-leased buildings which skewed the comparison. Few new buildings were completed in '93 and all deals resulted in reducing the available inventory of office space, with momentum being driven by small users. Vacancy fell to 19.8 percent, which was 1 percent less than the previous year, displaying a widespread improvement through all the sub-markets and towns. "A" class modern buildings reflected a lower vacancy of 16 percent, while older "B" buildings experienced a higher vacancy rate of 24 percent.

Large floor plate "B" buildings continue to suffer vacancies due to lack of flexibility while smaller floor "B" buildings, adaptable to subdivision, have gained. Large "A" buildings continue to be leased, but without replacement are becoming scarce. Space is tight in the Route 287 and Route 78 area and this shortage will not be corrected for several years due to lack of appropriate land and a long permitting process. Having an older inventory, Middlesex County, particularly Woodbridge, Edison and the Brunswick areas, failed to participate in the small successes noted by other areas.

In 1994 these towns should experience a backwash of tenants willing to make deals because they are unable to find space in the tight northern Route 287 and 78 area. Ten year leases are becoming common as tenants attempt to lock in today's low rents. Generally rents increased and landlord concessions have been reduced compared to previous years.

Sale prices, still below replacement costs, ranged from $60-90 per square-foot for "A" office properties and $30-50 for "B" buildings. Institutions appeared as buyers again after a long absence from the market, and a handful of speculative office buildings are underway. Net space absorption during the next several years will range between 1 and 4 million square feet per year and is dependent upon new employment. If it approaches 4 million square feet for several years, the office market will come back into balance and new development will return.