CUSHMAN & WAKEFIELD LEADERS DISCUSS N.J. COMMERCIAL REAL ESTATE
Webinar Examines State Economy, Market Fundamentals through 1Q12
EAST RUTHERFORD, N.J. – April 5, 2012 – (RealEstateRama) — With the first three months of 2012 “in the books,” commercial real estate services firm Cushman & Wakefield, Inc. this week hosted a webinar examining New Jersey’s economic progress, office and industrial real estate conditions, and capital markets performance. Presenters included Gualberto “Gil” Medina, executive managing director, New Jersey; Ken McCarthy, senior managing director, New York Area Research; and Gary Gabriel, executive vice president, Metropolitan Area Capital Markets Group.
THE NEW JERSEY ECONOMY
Medina spoke generally about where New Jersey’s economy has been and where it is going, citing the important correlation between regional economic and real estate performance. “People tend to focus on the setbacks of the past decade,” he noted. “Yet despite the fact that New Jersey is one of the smallest states, it has been and remains a leader in terms of its economy.”
Medina noted that, among other bragging rights, New Jersey has the country’s seventh-largest economy in terms of GDP; it is the fourth “smartest” state, as measured by education level; and is ranked seventh in GDP per capita, making it one of the country’s wealthiest states. Additionally, the Garden State remains a leader in several key sectors, including technology, chemicals, pharmaceuticals, machinery, electronic equipment, and processed foods.
Job growth presents the state’s biggest current challenge, according to Medina. New Jersey’s jobless rate remained unchanged at 9 percent. That eclipses the national rate for February of 8.3 percent. “Between December 2007 and February 2010, the state lost 248,200 private sector jobs,” he said. “Since then, it has added 74,500. We still have to add 173,700 private-sector jobs to return to where we were before the recession started. This is a pretty deep deficit.”
The good news? New Jersey employment is moving up at a well-sustained rate. “During the first two months of 2012 alone, New Jersey created more than half the number of jobs it did during all of last year,” Medina noted. “In January and February, employers in the state added a net total of 17,500 non-farm jobs. The number of private sector jobs in the state has reached a three-year high and is expected to continue to climb.”
COMMERCIAL REAL ESTATE CONDITIONS
McCarthy, who discussed commercial real estate fundamentals, noted that office vacancy rates in the New Jersey have remained relatively constant. The Class A vacancy rose 0.9 percentage points during the first three months of 2012 to 21.5 percent, while class B vacancy fell slightly to 18.0 percent, a 0.3 percentage point drop since the end of 2011.
“On the other hand, direct average asking rental rates in the office sector continue to slowly increase as a result of a cautious confidence in the modest and gradual recovery of the economy and the New Jersey market,” McCarthy noted. The first quarter of 2012 saw a $0.47 per square foot year-over-year increase in average asking rents to $25.06 per square foot. Class A asking rents saw an even larger year-over-year increase, rising $0.61 per square foot since the first quarter of 2011, to a current $27.38 per square foot.
“In the short-term, office vacancy rates will remain flat, while asking rental rates will likely continue to slowly rise,” McCarthy said. “We expect that the latter part of 2012 will see a rise in leasing volume.”
In the industrial sector, the overall vacancy rate increased 0.2 percentage points to 9.8 percent during the first quarter. Leasing activity in the Northern and Central markets totaled nearly 4.6 million square feet.
“Although this represents a fairly sizable decrease in leasing velocity following an impressive 2011, we anticipate strong numbers through the remainder of the year,” McCarthy noted. “And it is important to note that all major New Jersey industrial submarkets have improved since the recovery began. Looking ahead, expect the surplus of space in markets such as Exit 8A and Lower 287 to absorb this year.”
CAPITAL MARKETS PERFORMANCE
Gabriel noted that New Jersey’s $1.5 billion in office sales volume represented an increase of 10 percent over 2010 volume and 120 percent over 2009 volume.
“Within this improvement, we are dealing with a bifurcated office market,” he said. “Core, best-in-class assets are selling exceptionally well. In fact, the trades of six trophy corporate properties comprised 87 percent of 2011 office sales volume. We have never seen anything quite like that. These transactions helped to generate the highest average price per square foot – by far – in any year posted since 1994.
“On the other hand, ‘vanilla’ suburban office is a difficult sell in today’s market,” Gabriel noted. “We need to see more in the way of rental growth and tighter vacancies to rekindle investor interest there.”
So far in 2012, approximately $600 million in office investment sales have closed or are under contract in New Jersey. “We expect to see an okay year, with $1 billion in total trades projected. However, investors will remain very selective with their interest.”
Moving to industrial sales, Gabriel noted that New Jersey sits at the top of investors’ lists. “Everyone is looking to coastal markets, and we are no exception,” Gabriel said. “Within that context, there is plentiful capital, vacancy rates and down and rental rates are showing some perk.”
Still, the number of closings has been relatively small, considering New Jersey’s 800 million-square-foot inventory. “We were off to a good start in 2011, slowed during the second half and not much has happened so far in 2012,” Gabriel said. “That’s fairly remarkable for the third largest industrial market in the United States. Still, sales volume last year and today shows a significant increase over both 2009 and 2010, indicating that we are headed in the right direction.”
The presentation can be downloaded at: https://caryl.webex.com/caryl/lsr.php?AT=dw&SP=MC&rID=9554542&rKey=a0ab931aa24f28d4
To view the recorded Webex session, please install NBR2 Player first. The link to the installation file is: https://go.webex.com/client/T26L/nbr2player.msi
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Media Contact:
Evelyn Weiss Francisco: evelyn (at) caryl (dot) com, (201) 796-7788, www.twitter.com/carylcomm
