MARKET HIGHLIGHT, MAY 2010
SOUTHERN NEW JERSEY
Southern New Jersey Office
Recent news: There has been no new development and few substantial leases. Due to the economy, some tenants are seeking 1-year renewals, waiting to see how the market shakes out. Price points are such that landlords are willing to make concession packages available; as a result, more tenants say they have to at least look at these other buildings. For a tenant to actually move, it has to be a very aggressive deal or a situation where they can’t grow or move within a building. The tenants that do not move are also not willing to do 5-year deals, rather 1- or 2-year extensions.
Submarket update: There are some large tenants looking in the Princeton/Trenton marketplace. Blackrock is out for 100,000 square feet; Marsh & McLennan is looking for 25,000; Amerigroup is out for 30,000; and others are looking for 30,000 to 40,000 square feet. Princeton’s got movement now. Farther south, Cherry Hill is a market unto itself.
For micro-markets, Red Bank in Monmouth County is outperforming the rest of the marketplace and commanding the highest rents. The latest example was Booz Allen Hamilton taking 23,000 square feet at 141 West Front Street, a 5-year deal with an average rental rate of $34.50 per square foot gross plus TE, with a $47 work letter. You can make the argument that it was parking—they have a parking deck—and the building is one of the nicest in the county.
We are also seeing fall-out related to the pending 2011 closure of Fort Monmouth in Eatontown. Many of the Fort’s contractors have co-terminated their leases with the closure, and landlords will be facing a lot of vacancy.
Predictions for the next year: Tenants will test the market, play the renewal gambit and do no more than 2- to 3-year renewals. Rarely will you see a 5-year renewal. Everyone will ride this market out as long as possible, depending upon how their business performs. Tenants keep thinking rents will drop, but there is a breaking point in these buildings where you cannot go any lower.
More buildings will be taken back by lenders, who will create a “fire sale” and attempt to steal tenants just to off-load those buildings. That is where you will actually see movement because deals will be so aggressive. Played correctly, many tenants will be in a good position to take advantage but have to be willing to give terms — 3 to 5 additional years. But they could see upwards of 20 to 25 percent reduction in rents.
— John Kaye is director at Cushman & Wakefield of New Jersey (Edison, N.J., office).
Southern New Jersey Industrial
Recent news: Within the past year, Goya Foods completed a 200,000-square-foot build-to-suit warehouse/distribution facility in Matrix Development's Gateway Business Park in Salem County, and there have also been two major land sales, one of them for 1 million square feet, in the same park. Beyond those transactions, I am hard-pressed to recall any significant lease or sale transactions in the region. Currently, the South Jersey market is being characterized by smaller transactions.
Submarket update: We are currently seeing some activity in the Logan Township (Gloucester County) submarket, albeit smaller transactions. Logan Township includes Bridgeport, N.J., which has a well-developed industrial corridor.
The Exit 7A submarket (in Mercer County) is picking up as well, again with some smaller deals. However, we are currently out and about with a major potential user for the 7A submarket for a large amount of space. Exit 7A is a key logistics submarket, and what's happening there right now is that attractive pricing is creating increasing interest. But there have not been any big leases in 7A recently.
Predictions for the next year: South Jersey has been a bit of a laggard, but I believe that this is going to be a good year because there is so much pent-up demand. So many companies have been 'waffling,' and their decision-making has been just 'parked' for quite a while. Sooner or later, companies are going to be forced to expand — or shrink — and pricing is going to become attractive for them compared to where they are currently located. That, I believe, is going to cause an uptick in activity. We are already seeing the beginnings of that uptick right now.
— Stan Danzig is executive director with Cushman & Wakefield (East Rutherford, N.J., office).
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