Vacancies up slightly in central N.J., but rental rates stable - Insiders Outlook - New Jersey real estate outlook - Brief Article

The Central New Jersey office market, which had remained strong through midyear 2001 despite the softening economy, registered a 4.4 percent jump in the overall vacancy rate during the past three months to close the third quarter at 12.9 percent. In general, we have witnessed a significant number of corporate facilities being placed on The market for lease, as area companies trim work forces and attempt to reduce real estate costs.

The tragic events of Sept. 11 led to an increase in demand in New Jersey, as displaced companies sought immediate solutions to reestablish operations. However, the majority of this fallout leasing was concentrated in the northern counties. Still, Central New Jersey registered some impact on a short-term basis, as a handful of companies took space in the region, while others back-filled underutilized space with employees from Manhattan.

We anticipate that the long-term impact of the World Trade Center disaster will be felt throughout the state as a ripple effect. During the coming months, many tenants will be reexamining their real estate decision-making strategies. The trend toward corporate consolidations that we have observed during the past several years may shift to a tendency toward companies seeking to establish multiple locations. However, in Central New Jersey, a secure suburban facility can offer companies extended security options. Corporate users also will be reevaluating the strength of their disaster recovery and technology capabilities. This may lead to increased demand for data center and communications infrastructure facilities.

The short- and long-term leasing patterns stemming from the tragedy should not greatly affect market fundamentals. However, layoffs, downsizings and consolidations, due to the downturn in the economy, are having a highly negative impact on the local economy. Generally speaking, vacancy rates are trending up, while rental rates remain stable. At the same time, landlords have already begun to offer more concessions than in recent years, in the way of available workletters and/or free rent. This provides tenants with more options when renewing, expanding or relocating their facilities.

The good news is that the Central New Jersey market still registered positive absorption through the third quarter of 2001. With little to no speculative construction underway, we should be well-positioned to quickly recover from this economic downturn.

Within this context, the MetroPark area of the Woodbridge/Iselin submarket in Middlesex County remains one of Central New Jersey's strongest performers, providing unparalleled rail and major roadway systems. Large blocks that enter the market continue to be absorbed quickly. In addition, Siemens broke ground on Phase One of a redevelopment at its MetroPark headquarters, which will include 712,000 SF of office space in three buildings. This reconfiguration and expansion will incorporate a number of offsite improvements to enhance the overall landscape.

Elsewhere, the greater Princeton market in Mercer County remained fairly stable during the third quarter, although a number of projects that had been planned to launch as speculative development have been placed on hold pending tenant commitments. On a positive note, the conservative approach to speculative construction exercised during the past several years will prevent a glut of space from flooding the region. The same is true in Monmouth County, which has softened during the past year, but remains a stronger market in light of the economy.

While the overall picture in Central New Jersey may not be as positive as reported during the past few years, industry players anticipated and prepared for this slowdown. Developers are holding off on new projects, and the diversity of our tenant base - including a significant presence of the still-active pharmaceutical, bio-technology, high-tech and business services sectors - will continue to benefit the region as this temporary downturn runs its course.

COPYRIGHT 2001 Hagedorn Publication
COPYRIGHT 2002 Gale Group