Commercial vacancy in NJ drops 18% - New Jersey commercial market report by Edward S. Gordon Company Inc

Real Estate Weekly, August 26, 1992

Signs that New Jersey's commercial real estate market is stabilizing include a drop in the amount of available space to under 18 percent, marking a three-year low and absorption of more than 1.5 million square feet over the past year, according to the latest edition of the New Jersey Gordon Office Market Report, published by the Edward S. Gordon Company of New Jersey.

Another indication that the market's downward trend may be at its bottom is the very low level of construction activity. "With construction down to around 3 million square feet, a decrease of 65 percent from the average annual pace during the mid to late 1980s, existing buildings have an opportunity to lease up," explains Robert J. Rudin, ESG/NJ executive director.

On the other hand, leasing velocity, the amount of space leased over the past 12 months, dropped significantly from the previous year to 8.8 million square feet. Rudin attributes this inactivity to delayed decision-making based on economic uncertainties and stagnant rental rates.

The supply of Class A space, especially the large contiguous blocks has dwindled substantially leading to scarcities in such areas as Route 287.78 and Princeton. Tenants in need of large blocks could be forced into "design builds" or to act as anchors in new construction. "It is safe to say that their rents will be substantially higher than the deeply discounted rents that exist today," Rudin explains.

The availability rate for office space varies widely throughout the state, according to the Gordon Report. The Hightstown/Freehold low of 1.23 percent, Western Route 78 at 2.02 percent and Route 287/78's 8.10 percent contrast sharply with Meadowlands/Waterfront 32.54 percent and Route 22/Springfield/ Greenbrook's 30.74 percent. The overall average is 17.9 percent.

Asking price per square foot, according to the report, averaged $21.18 per square foot, ranging from a low of $17.04 in the Route 287/Piscataways/Brunswicks market to a high of $27.97 in Chatham/Millburn/Short Hills segment.

The Meadowlands/Waterfront market exhibited the highest net absorption at 560,000 square feet. The Route 287/Piscataway/ Brunswicks market ended up with 160,000 square feet more space than a year earlier. Overall, the state absorbed on a net basis 1.5 million square feet, according to the report. Six other submarkets had negative absorption or more space available than last year.

The lion's share of new construction took place in the Meadowlands/Waterfront market where three new buildings totaling 1.75 million square feet of available space increased the market by 19.44 percent. A total of 15 new buildings increased the state's office market by 4.7 million square feet or 3.81 percent. Ten submarkets saw no new construction in the previous 12 months.