Demand for industrial space remains moderate in Northern and Central New Jersey. People are, undoubtedly, out in the marketplace, but much of our regional activity ties to lease renewals. Tenants facing term expirations are opting to remain in place, reflecting the “wait and see” approach that so many companies have chosen in this tough economic climate. Relocations almost always involve a flight to quality, with tenants taking advantage of opportunities to land attractive deals for Class A space.

Deals today are being made at aggressive rental rates. As a result, available Class A space, especially in the Exit 8A submarket, has seen some absorption over the past 12 months. Across all submarkets in Northern and Central New Jersey, renewal activity comprises the bulk of leasing activity.

Although year-to-date leasing totals are up from a year ago by approximately 1.1 million square feet, vacancies have held steady during the past 12 months. At the end of 2010’s third quarter, the overall Northern and Central New Jersey vacancy rate rested at 11.3 percent. That figure is identical to the rate recorded at this time last year.

The average direct triple-net rental rate for Northern and Central New Jersey was $5.84 per square foot at the end of the third quarter. This represents a decrease from last year at this time, when the average was $6.23 per square foot. Rates still appear to be trending downward, but we anticipate that they currently are near—if not at—the low point.

Property values are also lower than they were 3 years ago. Cap rates are approaching aggressive levels akin to those we saw in 2007, but at much lower going-in rents. This reality, combined with incredibly low interest rates, has the potential to open up the pipeline for more sellers to enter the market.

On the sales side, Cushman & Wakefield’s Metropolitan Area Capital Markets Group recently closed two of New Jersey’s largest year-to-date industrial sales. A joint venture between IDI and institutional investors advised by J.P. Morgan Asset Management sold 130 Interstate Boulevard, a 413,092-square-foot bulk warehouse/distribution facility in South Brunswick, to Terreno Realty Corporation for $22.5 million. In Totowa, Terreno Realty Corporation purchased 200 Maltese Drive, a 208,000-square-foot warehouse/light manufacturing asset from High Street Equity Advisors for $16.5 million. 

I believe that the cycle has bottomed out. With the amount of vacancy and quality industrial product we have in Northern and Central New Jersey, our market offers plenty of great opportunities on the real estate side. At the same time, the recovery may take some time. Significant recovery can’t take place until the unemployment rate drops.

When unemployment ratchets down a bit and consumers start feeling good about the economy and spending more money, then we’ll start to see a more significant consumption of buildings.

We anticipate modest growth in 2011. Already, trends are moving in a more positive direction. Corporate America is gradually starting to release some capital for projects, but everyone is still somewhat cautious, which makes for slow progress.

— Jules Nissim is a senior director with Cushman & Wakefield’s East Rutherford, N.J., office.

©2010 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.

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