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   ARTICLE   |   From Scotsman Guide Commercial Edition   |   September 2003

New Jersey Office Market at Mid-Year 2003 Has Stopped Bleeding

Much-Needed Transfusion on its Way

Economists continue to tell us that the recession is over and that we have entered a recovery. And while the New Jersey office market, on its best days, is still experiencing flatness, we are seeing at mid-year 2003 a glimmer of light on the horizon. 

The first half of the year yielded status quo in most facets of the office sector. Demand for rental space and build-to-suit product remained steady but sluggish, countering a continued strong appetite for investor purchases across the board. 

The overall office vacancy rate in northern and central New Jersey for the second quarter remained relatively stable at 19.1 percent, a minor decrease from the 19.3 percent registered at the end of first quarter. Rental rates have leveled for the most part, with a few pockets that are still experiencing erosion due to oversupply. As a result, overall average asking rentals inched downward during the second quarter, registering $25.65 as compared to $25.86 at the end of the first quarter and $26.29 at year-end 2002. 

Still, overall absorption was positive—526,712 square feet during the second quarter of 2003. In addition, the amount of available office sublease space declined 1.4 million square feet during the first half of the year, resting at 10.1 million square feet. It appears that the sublet glut in New Jersey peaked during the fourth quarter of 2002 and is now retracting backwards due to expirations and modest leasing activity stemming from aggressive pricing.

New Jersey Fared Well In “Big Picture”

Despite the difficulties of the past two-and-a-half years, New Jersey has not suffered the level of job loss and resulting impact that has occurred in many other areas of the country. This is a testament to the breadth and diversity of our user groups and will provide a distinct advantage during the expected, albeit slow, healing process. 

We are already seeing a slight increase in demand in the technical industries, especially among pharmaceutical and biopharma tenants. Pfizer’s decisions in the coming months regarding Pharmacia installations may have some impact on the New Jersey market. On a positive note, the firm has already announced expansion plans for the former Warner Lambert headquarters site in Morris County. 

Demand within service industries, including law practices and accounting firms, also remains reasonably strong. Looking forward, there has been talk in the legal community about major mergers and acquisitions. How this will directly affect the New Jersey marketplace cannot be predicted.

Net Job Growth Would Bolster Recovery

Two key questions remain: whether corporations will institute additional job cuts and, if so, how that will impact our economy. However, many corporate economists suggest and recent figures published by the Federal Reserve indicate that New Jersey, in the second half of 2003 and in 2004, will enjoy an overall net job growth between 25,000 and 50,000. The resulting demand would clearly make a highly positive impact on real estate. In fact, it could lead to the reduction of a considerable amount of the vacant space that has plagued the market. 

New Jersey also continues to experience significant population growth. In 2004, between 100,000 and 150,000 new people are expected to establish residence here. Our well-educated and well-trained population always has been a magnet for corporations looking to expand their businesses, and the projected growth would provide the quality labor needed to fill these newly created jobs. 

On a national scale, economic growth has been projected in the 2 percent range. This does not represent a major stimulus, but it does signify an improvement. In addition, many economists predict that the recently signed federal tax cut will push this figure over 2 percent.

In summary, it does appear that the bleeding has stopped in the New Jersey real estate industry. Now we are seeking a much-needed transfusion. Bundling all of the projections for the remainder of 2003 and into 2004, it looks like we will find it, although it will likely measure in pints, not quarts. 


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