MARKET HIGHLIGHT, JANUARY 2006

NEW JERSEY MARKET HIGHLIGHT

New Jersey Industrial Market

Sales activity in New Jersey's industrial market remains very high. It's not unusual to see investors competing with users at similar price points to purchase industrial assets. The industrial sales climate looks to remain vibrant and healthy this year, with several investors aggressively looking to expand their portfolio in New Jersey, particularly AMB, Prologis and First Industrial, to name a few.

New construction of big box facilities in Northern New Jersey will be one of the stories to follow this year, specifically within the Port of Newark and Elizabeth market. There are a number of former brownfield sites that are being repositioned for development. The state of New Jersey has created incentives encouraging developers to pursue and develop former brownfield sites.

As for the port, with the improvements that are underway demand for facilities and land sites is rising dramatically.

A minor story line for the year will be what impact, if any, the new administration and new governor will have on development projects going forward.

Several developments are taking place along the New Jersey Turnpike in the towns of Carteret, Elizabeth and Perth Amboy. Catellus is developing 3,500,000 square feet at Exit 12 in Carteret with the first building of approximately 350,000 square feet completed and ready for occupancy. Panatonni Development, in partnership with Slayton Development, is planning a 1.5 million-square-foot project, also at Exit 12/Carteret. Matrix is developing several new facilities totaling more than 1,000,000 square feet in Perth Amboy, to name just a few of the new development projects.

These developments could affect the 7A to 8A markets because for the first time, Northern New Jersey has almost 6,000,000 square feet of new construction slated to come online in the next 24 to 36 months. Historically, in last 10 years or so, the only real alternatives for a tenant looking for a new, big box distribution facility were either in Central New Jersey, primarily 7A and 8A or into western Pennsylvania in the Allentown area.

There are a number of other development projects underway in the 7A and 8A markets, but the most significant ones, because of their proximity to Port Newark and Elizabeth are the ones referenced above. The Port Authority is virtually out of available space to accommodate the needs of its existing clients. New companies looking to move into Northern New Jersey or existing companies looking for expansion space have been forced to other markets because of the lack of viable alternatives. These new projects give companies more options for a new facility closer to the ports.

Overall vacancy for distribution space is around 8 percent, and average asking rental rates for Northern New Jersey remain around $6 per square foot to $6.25 per square foot and in Central New Jersey are just under $5 per square foot.

— Thomas R. Carragher is a senior vice president with Studley.

New Jersey Multifamily Market

Unmatched access to and views of Manhattan, an outstanding transportation infrastructure, and a great quality of life continue to fuel demand for multifamily housing along New Jersey's Gold Coast market, which spans the Hudson River from Fort Lee to Bayonne. In response, the amount of investment dollars chasing opportunities within this prime market has grown exponentially during the past 3 years and continues to gain momentum.

While the well-known players of multifamily real estate in New Jersey traditionally have included small and mid-size family-owned businesses, institutional owners have flooded the Gold Coast region and the suburban New Jersey markets. The market is seeing an incredible amount of activity from organizations that are institutional in nature like AEW and ING, as well as the condo converters that have both purchased existing or are developing new properties along the waterfront, including Tarragon, Toll, WCI, Pulte and Lennar.

Properties like the Maxwell House factory in Hoboken, a Unilever manufacturing facility in Edgewater and a Royal United property in North Bergen are being redeveloped for multifamily and retail use. Demand for existing multifamily product remains strong.

Interest rates are still relatively low by historical standards, and New Jersey is experiencing steady job growth. As a result, for-sale buyers remain active in this market with several deals closed in the last 12 months alone, including Portofino in Jersey City and Lennar's acquisition of the Prudential/Roseland portfolio along the waterfront. The rental market also has stabilized and concessions at most Class A properties are being eliminated. Occupancy rates have increased modestly to the low-90 percent range in the region.

Throughout this year, the market will see renewed focus on urban infill redevelopment projects as families look to move to more urban areas. Cushman & Wakefield's pipeline and activity throughout the larger investment community indicate that multifamily is the sector to watch this year. In this context, New Jersey's Gold Coast is ideally positioned to accommodate investors looking to reap the benefits of growing their involvement in this niche.

— Jose Cruz is a senior director with Cushman & Wakefield's Metropolitan Area Financial Services Group in East Rutherford, New Jersey.

New Jersey Retail Market

Opportunities created through the revitalization of formerly blighted areas are at the forefront of retail trends nationwide. This trend is especially evident in New Jersey, where increasingly underutilized industrial areas co-exist with some of the most densely populated and affluent residential areas in the country. Mixed-use developments incorporating retail, residential, office and recreational components are sprouting all over the state.

From a retail perspective, these new communities are creating opportunities for suburban chains looking to expand. Restaurants, health clubs, clothing stores, furniture stores, banks, salons and other services are among the typical tenants drawn to support these projects.

One example, SJP Properties' Waterfront Corporate Center in Hoboken, has added nearly 1 million square feet of Class A office and retail space on 2 acres of waterfront property overlooking the Manhattan skyline that had been vacant for more than 20 years. While Hoboken had an existing retail and restaurant environment, the city lacked a significant daytime office population needed to attract national retailers. Moreover, the existing retail space in Hoboken did not meet the size and character requirements demanded by certain retailers. Today, Hoboken's waterfront has been transformed completely into a community attraction, which includes a first-class health club, day spa, restaurants, apparel and service retailers.

Elsewhere in the state, Advance Realty Group's Harrison MetroCentre in Hudson County and Westminster Communities' Landings at HarborSide in Perth Amboy, Middlesex County, are prominent examples of urban redevelopments. Both projects occupy prime waterfront sites with proximity to transportation and combine retail and residential components to create a vibrant community environment. In Harrison, Advance anticipates up to 150,000 square feet of retail space to support 3,500 residential units, 2.5 million square feet of office space and a 25,000-seat sports and entertainment stadium. In Perth Amboy, Westminster Communities plans to develop 150,000 square feet of retail below 2,100 residential units, recreation facilities, a marina and a hotel.

Throughout the state, incredible potential remains for developers and retailers looking to take advantage of redevelopment opportunities in urban centers. The cities incorporate the infrastructure to support development with state government benefits that provide additional appeal for retailers and retail developers to stay focused on urban settings. In addition, as the cities are revitalized with mixed uses that produce more affluent daytime and evening populations, the momentum for retail expansion in New Jersey's cities is likely to remain strong for the rest of this decade and beyond.

— Michael Stone and Justin Stein are New Jersey retail specialists with Cushman & Wakefield in New York City.

Central New Jersey Office Market

The Central New Jersey office market, for the first time in recent memory, is experiencing a resurgence of activity both in leasing and in development. Most notably, the Princeton submarket is seeing new development with several projects. Reckson Associates and The Patrinely Group are both developing on a speculative basis with new Class A office product being delivered in the coming 12 to 18 months. The long-anticipated 902 Carnegie Center has also commenced construction. With this re-emergence of spec development, the New Jersey marketplace is finally recognizing the expansive differences between obsolete product remaining available on the market and what corporations are truly looking for in facilities. Users have shown themselves ready, willing and able to pay for quality construction and the ability to create a dynamic environment for their employees.

Princeton, in particular, has demonstrated a true confluence of advantages to corporate users. With the critical mass of major corporations situated in the submarket, corporations such as Merrill Lynch, ETS, Bristol-Myers Squibb, Johnson & Johnson and Novo Nordisk continue to seek each other out as corporate neighbors. Here is an example of Class A companies coming together to create a Class A market. In addition to this, Princeton boasts high-end residential areas and cultural and educational amenities that are unrivaled. However, one town does make not a region. Franklin Township is experiencing increased activity, with several transactions adding to the cautious optimism throughout the area. Markets such as the Piscataway/287 corridor still linger in a slump and are awaiting new or refurbished buildings to replenish its stock of office product.

Overall, New Jersey continues to be a very favorable market. According to the findings of CB Richard Ellis' Third Quarter Marketview and the Fall 2005 New Jersey Office Update by Torto Wheaton Research (TWR), the Northern/Central New Jersey office market is sustaining its recovery. With the availability rate inching lower from 2004, the availability rate in the Northern/Central New Jersey office market is slowing, but steadily decreasing from 19.7 percent as of the third quarter 2004 to 18.5 percent as of the third quarter 2005. This rate of 18.5 percent has much further to decrease before the market is in balance but is showing a gradual improvement since 2003, when the rate peaked at more than 20 percent. According to TWR, the office short-term forecast calls for overall positive growth in office workers through year-end 2005. In the last four quarters, Northern and Central New Jersey/New York City's total employment level has grown by 0.8 percent. Total employment in the area is forecasted to grow 1.1 percent in the next 2 years.

With such reassuring statistics, the   Central New Jersey office market will continue to show great upside to potential to developers and users alike. Princeton alone will demonstrate well-deserved renewed interest in the next several years.

— Raymond Sohmer is a managing director with CB Richard Ellis' East Brunswick, New Jersey, office.

New Jersey Investment Market

Office building sales in Northern and Central New Jersey are on pace to exceed $2 billion for the third consecutive year — and for good reason. With more than 200 million square feet of office product, New Jersey ranks as the fifth largest office market in the nation and is headquarters to 26 Fortune 500 companies — ranking the state third in the country. Equally important to investors is the diverse nature of the companies that house themselves in New Jersey's office parks and central business districts — insuring a steady stream of users, regardless of the woes of industry-specific economic conditions.

What may be surprising to some is the level of activity that has and continues to take place in the sale of buildings that are entirely or mostly vacant. In the first three quarters of 2005, 11 properties have sold and two more are under contract. Aggregating more than 2.9 million square feet, these properties are attracting both investors and users that consider this an ideal time to acquire an asset that can generate significant yields for an investor or provide a lower cost occupancy for their own use.

The demand for vacant buildings is a very positive sign that the office market in Northern and Central New Jersey continues to be a highly sought-after location for users as well as investors. Of the 11 deals that have sold, five were purchased by user groups that intend to occupy the space. Most important is the influx of new jobs that the users will bring to the area. The largest transaction, Verizon's purchase of the 1.3 million-square-foot former AT&T campus in Basking Ridge, will result in 1,800 new jobs for the state. Time Warner's purchase of the 130,000-square-foot building in Parsippany will represent almost 200 new jobs to the state as this facility will serve as general office for two publications and a data recovery center. MetLife's purchase of the 413,000-square-foot building on Davidson Avenue in Somerset has the potential of adding up to 1,500 new jobs. In Bergen County, a recent purchase by Southpole Apparel will result in about 400 jobs coming to New Jersey. A favorable by product of user purchases is significant positive absorption of space in the specific submarkets.

Most investors do not purchase vacant buildings with the hope of finding a single user to lease or purchase the entire facility. Instead, investors look to redevelop or reposition the asset to suit the needs of a multiple of potential tenants. Notwithstanding this labor- and capital-intensive game plan, investors are able and willing to pay close to user pricing and still realize a significant return on invested equity. In a market where existing cash flow is trading at a premium, some owners may be pleasantly surprised to find that their vacant buildings can be sold to the larger pool of investors versus users, assuring a smooth and timely disposition program.

— David Csontos is a senior vice president in the Investment Sales Division of GVA Williams New Jersey.

Northern New Jersey Office Market

The Northern New Jersey office market ended the third quarter of 2005 with a vacancy rate that was relatively unchanged from the rate at the close of the second quarter. Average gross rental rates among Class A and B office buildings in the Northern New Jersey office market closed out at $23.57, and the vacancy rate was at 14 percent on a direct basis. The vacancy rate among sublease space increased in the third quarter, representing 3 percent vacancy and bringing the total vacancy rate to 17 percent in the office sector. A significant block of space added to the market was JPMorgan Chase listing 330,000 square feet for sublease at 570 Washington Boulevard in Jersey City.

While these statistical numbers remained mostly flat, optimism seems to be running high among developers with several speculative development projects underway in Northern New Jersey. In the Princeton marketplace, two projects are in motion:

• The Patrinely Group has begun construction at 1100 Campus Road, Princeton, a five-story, 167,000-square-foot, Class A office building that should be ready for delivery in the first quarter this year.

• Reckson Associates Realty Corporation has begun construction of a five-story, 316,000-square-foot, Class A office building delivering in September.

In the Parsippany marketplace, The Gale Company, in a joint venture with JPMorgan Asset Management, has broken ground at 100 Kimball Drive, a 175,000-square-foot, five-story, Class A office building anticipated to deliver in the third quarter.

One submarket that people should keep their eyes open for in the near future is the Central New Jersey market. In the past several quarters there have been some significant deals that have transpired in this market, among which include:

• Sanofi-aventis took nearly 700,000 square feet at 55 Corporate Drive, Bridgewater, a 150-acre site owned by The Gale Company.

• Two leases at 5 Wood Hollow Road, Parsippany, with AIG leasing 117,000 square feet and Cingular Wireless leasing 72,000 square feet.

• Common Health leased 175,000 square feet at 400 Interpace Parkway in Parsippany.

• Atlantic Health Care Systems leased 210,000 square feet at 475 South Street in Morristown.

These noteworthy deals, coupled with the rumors of several other large deals and the speculation development project at 100 Kimball Drive should target this region as a good barometer of the market going forward in 2006.

— Christopher Conklin is an associate with the Murray Hill, New Jersey, office of The Staubach Company.


©2006 France Publications, Inc. Duplication or reproduction of this article not permitted without authorization from France Publications, Inc. For information on reprints of this article contact Barbara Sherer at (630) 554-6054.