Central New Jersey finally out of its slump - real estate industry - Annual Review and Forecast - Industry Overview

The New Jersey market is gaining new momentum, evidenced by the fact that leasing velocity increased from 7.67 million square feet in 1995 to 8.49 million square feet in 1996. The availability of vacant space has decreased by a substantial 9 percent from 1995 to 1996.

Vacancy rates continue to improve in such markets as Somerset/Franklin Township (Route 287 corridor), with net absorption close to a positive level for the first time in several years. While many areas of New Jersey began to see signs of recovery more than a year ago, such as the waterfront and Parsippany, Central New Jersey has been slower to react. Recently, Central New Jersey has seen some major activity, signaling an end to the economic slump that has stifled the region since the late 1980s.

Central New Jersey is finally making a comeback, namely because of several large, long-term leases with major corporations, including US Servis' lease for 37,000 square feet of Class A space at 220 Davidson Avenue in Somerset and AT&T's lease for 176,000 square feet at 500 Atrium Drive. Rental rates in the area have already reflected this new activity, and are presently hovering around the $17.50 range for Class A space. In 1997, these asking rental rates are expected to jump to $18.50 per square foot as the market continues to tighten up.

Although tenants were able to negotiate for work letters and concessions, landlords are now hesitant to offer any kind of incentive packages due to the market's fervent leasing activity. However, the Somerset/Franklin Township area still offers tenants considerable value for their leasing dollar compared to other sections of New Jersey.

The major activity that is now driving the market is the expansion and relocation of existing New Jersey tenants. Companies such as Huls America and US Servis have virtually doubled in size and expanded their present leases or relocated to account for added staff. Additionally, several investor groups have shown interest in the Central New Jersey market and are paying at and above market value for many long-term leased properties.

As the Central New Jersey market continues its recovery, we may see some speculative construction within another 18 months. Even with the rising rental rates in this market, Central New Jersey still offers better "deals" than other areas of Northern New Jersey.

Northern New Jersey areas such as Parsippany have made close to a full recovery and will see new construction on a build-to-suit basis much sooner than Central and Southern New Jersey. The rejuvenation of the Parsippany market is evidenced by the fact that rents have increased over a dollar per square foot and the area currently has the highest leasing velocity in New Jersey. Few large blocks of prime space remain in Parsippany, leaving new construction the best option for expanding companies that wish to remain in the area. In fact, ARES is currently investigating build-to-suit construction for a growing tenant that can't find enough space in Parsippany.

In general, the entire New Jersey real estate market is stabilizing. Improvement of rental rates has risen and the strong demand for office space continues. New Jersey should reap plenty of rewards in 1997, as the market continues its rebound and more major corporations decide to relocate and expand.

COPYRIGHT 1997 Hagedorn Publication
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