COO of National Business Parks, managers
of the area’s College Park at Princeton Forrestal Center.
Still, there is a prevailing “wait and see”
attitude in the market. “Most companies
are not spending,” Marano says, “and even
those that have not undergone layoffs or
severe budgetary cutbacks are marking
time to see what the next 18 to 24 months
will bring.
Certainly, one bright spot in Central
New Jersey is that there has been a limited
amount of speculative construction over
the past few years. Once tenants start to
make transactions, Sarno says, there’s the
possibility that we’ll absorb these vacancies
quicker than we did in the last recession.
“The vacancy rates will get back closer to
equilibrium and on a faster track than the
last time around.” For what it’s worth, he
adds, things should begin to improve by
the middle of 2010.
On the industrial front, however, the
outlook is a bit bleaker. Manufacturing in
the state continues to dip, with a loss of
3,700 jobs, along with a decline of 1,800 in
the trade, transportation and utilities sectors, according to figures from Cushman
& Wakefield. And unlike the office market,
there was a significant amount of speculative building over the past few years, leading to approximately one million square
feet of un-leased spec product.
“I have never seen such a precipitous
drop in rental rates or landlords taking
“There have
been a
tremendous
number of
tenants looking
for some rent
relief or upfront
concessions.”
JOSEPH SARNO
Cushman & Wakefield
such an aggressive position relative to incentives and free rent,” says Rob Kossar,
managing director at Hasbrouck Heights-based Jones Lang LaSalle, though he admits that the current concessions craze will
likely come to an end early next year.
Still, there’s a good deal of vacant first-
generation space on the market. “Although
we’ve seen downward pressure to reduce
those rents, the worst is still ahead for some
of these property owners that have had
vacancies for a year or two,” says Barry Cohorsky, vice president, NAI James E. Hanson
in Hackensack, who believes we won’t see a
bottom to the industrial side until 2010.
The main driver behind declining industrial rents: competition from other regions.
“We all think of the competition as being
Pennsylvania’s Lehigh Valley, but that’s just
one piece,” Kossar says. There’s also an entire market down by Exit 7A, which is actually doing even worse than Exit 8A, with the
former posting a 23% vacancy and the latter around 14% if you discount owner-oc-cupied buildings. “However,” he adds, “the
7A assets are newer and landlords there are
being extremely aggressive, which is causing 8A owners to respond in kind.”
To the north, meanwhile, there is a spate
of new industrial buildings at Exit 12. According to Kossar, tenants who might have
taken space at 8A or Heller’s Park in Edison are looking at buildings closer to the
port at Exit 12. In time’s past, he says, “if
somebody needed a new, modern distribution center they had to be in Central New
Jersey, but now there are some options.”
One of the broader challenges for the region, from a distribution standpoint, is accessibility to good labor. “Right now, we’re
jitneying in labor from Perth Amboy or
Brooklyn,” Kossar explains. “A mass transit
solution here needs to happen. Even if the
government were to subsidize busing into
these areas, the payback would be obvious
and easy in terms of payroll tax.”
Despite current conditions, Kossar is
bullish on Central New Jersey, noting that
the food and beverage industry is still showing signs of life, while third-party logistics
providers will bounce back first in the recovery. “It’s all about location and Central
New Jersey has it.”
But others aren’t quite as optimistic.
“We’re not seeing many bright spots,”
Cohorsky says. For one, the trucking and
transportation industry is drying up thanks
to declining in-bound port deliveries,
which are down around 30% from 2007
numbers. “If you’re looking for a couple
hundred thousand square feet, there are
close to 50 properties between Exits 10
and 7A,” he says.
The market here is swimming in space,
agrees Marcus & Millichap’s Elmwood
Park-based senior associate Jeff Oran, who
has seen 200,000-square-foot tenants sign
8A leases starting at less than $1. “To fill
these big chunks of space, landlords are offering average rent deals in the $3s over a
five-to- 10 year period, which is a significant
drop from just one year ago.”
Part of the problem is that New Jersey is a
notoriously expensive state in which to operate. “Because of its location, the area is still
ROB KOSSAR
Jones Lang LaSalle
“If somebody
needed a new,
modern
distribution
center they had
to be in Central
New Jersey, but
now there are
some options.”
viable, but when the market changes and
puts pressure on rates, warehouse tenants
flee to Pennsylvania, where it’s much easier
to do business,” Cohorsky says. “A developer
can go there and most likely have a three-to-six month approval process, as opposed to
18 months to three years in New Jersey.”
And Pennsylvania is not the only state
snapping up Garden State transplants.
Both North and South Carolina have become attractive options. “Those states and
their respective governors have assembled
teams to attract tenants by offering tax incentives and abatements,” Cohorsky says.
“The reality is that if you’re a manufacturer
and you have a couple hundred jobs, you
can make a much better deal elsewhere.
New Jersey has lost a lot of business to the
Carolinas because of those states’ ability to
make an attractive deal.”
And there’s an even larger problem
than tenants skipping over state lines in
search of more attractive offers. “We’ve
seen very few tenants move their businesses into New Jersey,” Lipper says, “and
the reality is that until the state becomes
viewed more positively by business you’re
not really going to see much growth.”—RENJ
