Across the board, the commercial real estate market in New Jersey is in recovery — in line with the state’s overall economic rebound. Vacancy rates in the retail sector remain very low, thanks in large part to the high barriers of entry. Developers are showing renewed interest in urban markets; redevelopment and adaptive reuse of existing properties is a hot trend.

The office market has shown signs of growth in every region of the state throughout 2004. Though rental rates have yet to begin increasing, the market expects to continue its turnaround.

The industrial market in New Jersey is doing well, after it experienced only a nominal downturn during the past few years. Vacancy rates are dropping as rental rates steadily rise.

Thanks again to low interest rates, the investment sales market is moving in the right direction, and the activity is expected to continue at record levels through the end of 2004.


New Jersey is the most densely populated state in the country with one of the highest per capita incomes anywhere. Retailers are drawn to those two facts. Factoring out the available secondary and tertiary retail space, the vacancy rate in Northern and Central New Jersey is approximately 3 percent. This low vacancy rate and the scarcity of new development opportunities are the key barriers to entry that make New Jersey so desirable.

Because of the state’s efforts to curb sprawl, urban sectors such as Asbury Park and Harrison are seeing a renewed interest from developers. Older urban areas are most in need of this attention from retailers in order to service existing residents as well as the influx of those moving into urban quarters. As demand has increased, and low interest rates and the economy continue to play a role, rental rates in such established suburban markets as Paramus have risen, and are hovering in the mid-$30s to low $40s. Urban retail space owners will soon begin to demand this same level of rent as well.

With mixed-use development as a key vehicle for urban renewal, the redevelopment of downtown parcels is on the rise. One such example is Woodmont Properties’ proposed redevelopment of the former Epstein’s department store in the center of Morristown.

In the suburban and rural areas, especially those in Northern New Jersey, it is becoming increasingly difficult to find viable sites and/or development-friendly municipalities.

As a remedy for this, we are seeing increased adaptive reuse of underutilized and outdated industrial facilities being redeveloped as retail or mixed-use projects. CB Richard Ellis recently represented an owner of an industrial facility on Route 1 in Middlesex County in the sale of its property to a local developer. Planning is underway for a major mixed-use project at the site, which will include a large retail component. In addition to industrial, some entertainment venues such as the Flemington Raceway and the Cherry Hill Race Track are being redeveloped in the same way.

With limited and/or highly expensive land opportunities and extremely stringent zoning, developers are also looking to develop out of Northern New Jersey — taking advantage of the more development-friendly areas of Central and Southern New Jersey, where more land is readily available and local municipalities are more welcoming to new development.

However, with developers such as Short Hills-based Garden Commercial Properties, National Realty from Westchester and Long Island-based Kimco remaining active throughout the state, new product will not dry up. Monmouth and Ocean counties, as well as Warren County, will prove to be growth markets — taking advantage of a housing development boom.

Art Weiss, Vice President, CB Richard Ellis


Only slightly affected by the recent downturn, the industrial market is showing further strength as the economy continues to recover. The current vacancy rate stands at nearly a full percentage point better than a year ago and should continue to gradually decrease over the next 12 months.

The Exit 8A submarket is leading the way in the industrial sector, encompassing more than 5.5 million square feet of new development and more than 7.8 million square feet of projects under construction. Just one exit farther south on the New Jersey Turnpike, Exit 7A continues to do well. Warehouse space in these submarkets flourishes due to their proximity to all points south, Philadelphia and New York City.

There is also steady activity in the Exit 10-12 marketplace, which offers tenants several advantages, including its accessibility to a variety of transport needs such as Ports Newark and Elizabeth and Newark Liberty International Airport. Real estate in close proximity to these sites will continue to command higher rental rates.

New Jersey is also witnessing a number of large entrepreneurial companies relocating into Central New Jersey, thus increasing employee retention, cutting labor costs and lowering facility operating costs. Strong product demand has led to the proposed development of brownfields sites up and down the Turnpike corridor.

Dominant landlords in New Jersey’s industrial marketplace include ProLogis, First Industrial Realty Trust, I. Heller, Hartz Mountain, AMB, ING Clarion and Russo Development, among others.

Although leasing activity dropped off somewhat during the second quarter of 2004, the 17 million square feet leased during the first 6 months of the year was 35 percent ahead of last year’s pace.

In the near future, expect rental rates to continue to rise slowly for the next 12 to 18 months and build-to-suit transactions to pick up. All in all, new development in New Jersey will persist and demand will remain high as economic growth continues throughout the state

Mitch Katz, Vice President, Trammell Crow Company


In New Jersey, there is confidence, with the overall economic rebound well on its way, that the commercial real estate market will continue the turnaround that began earlier this year.

In nearly every region, the New Jersey office market has been showing signs of growth. Reflecting upon current conditions, it is apparent that demand is showing a steady increase as New Jersey’s economy continues to perform strongly. In addition, the average deal size has been steadily increasing as well.

We have also seen the emergence of new firms in the market. It is very encouraging to see new companies such as Altana, Biovail and Odyssey Pharmaceuticals either entering the market for the first time or quickly expanding their presence. These firms that are now entering the market are playing a key role in this upward movement, as are firms like Citigroup, AIG and High Point Insurance. As firms increase their commitments to New Jersey, the economy will continue to flourish.

Throughout the first half of 2004, we have seen an increase of occurrences where several tenants are chasing a single block of space in prime property. In most markets, the excess of sublease space continues to drop, although it remains at levels above historical averages.

Rental rates have not been increasing, though concession packages are steadily becoming less generous. However, despite the improving trendline, no major new construction is foreseen in the near future.

In retrospect, the economy is experiencing a steady growth pattern and the state has recovered all the jobs lost during the recession. We have also seen a number of new companies coming into the market. As companies continue to invest and cultivate their businesses, the market will reflect further improvement. This breeds confidence that these trends will continue and provide a strong market in years to come, though perhaps not at levels seen prior to the recession.

Matthew McDonough, Senior Vice President, Trammell Crow Company

New Jersey Investment Sales

All sectors of the investment sales market continued strong in New Jersey in the first half of 2004 due to low interest rates and an abundance of quality product. Several leading indicators are pointing in a positive direction for the Northern and Central New Jersey markets’ long-awaited recovery. Year-to-date leasing velocity totaled 5.01 million square feet of space, representing an increase of more than 790,000 square feet from the same time last year. Furthermore, absorption in the second quarter was positive — a significant advancement when considering that absorption quarter after quarter has been predominantly negative since 2001, and a momentous improvement in comparison to last quarter’s negative absorption of more than 1 million square feet.

According to Torto Wheaton Research reports, there are several factors driving the improving commercial real estate market in Northern and Central New Jersey, most notably office employment and measured economic growth, continued de-centralization of major corporations relocating from New York City, and the emergence of New Jersey’s urban markets and its international trade importance primarily through Port Newark and Newark International Airport.

These positive trends have impressive repercussions on the investment sales market with considerable office sales activity during the first half of this year. SJP Properties has sold Waterfront Corporate Center I on the Hoboken waterfront to JP Morgan Investment Management for $180.7 million. The joint venture of Investcorp and Lincoln Equities Group has sold 180 Park Avenue in Florham Park to Wells Real Estate Funds for $78.4 million. And Advance Realty Group has sold Riverview Executive Park in Trenton to iStar Financial.

Quality real estate with strong tenancies is highly sought after as an investment vehicle. Particularly interesting is the growing attention being given to New Jersey assets from outside investors who have never ventured into the market before. We more typically see outside venture capital interest when selling properties in major cities. A recent example completed by CB Richard Ellis is the $30.3 million acquisition of 150 and 200 Meadowland Parkway, a two building, 211,962-square-foot office property in Secaucus, by Willett Companies, a first-time buyer in New Jersey. The outside investment interest we are seeing is an indicator of stronger economic times to come.

The retail and apartment markets have also appealed to entrepreneurial investors, pension funds and REITs looking to take advantage of the low cost of debt. As we have seen, office product has traded at a vigorous clip, though caution related to ongoing high vacancies is resulting in more careful evaluations during due diligence. Properties with stable, credit tenants continue to sell for record amounts, while those without sell for less. The industrial market, especially in Northern New Jersey, also reflects investors’ desire for product. To date in 2004, properties throughout the state and especially areas such as the Meadowlands, Exit 8A and the Route 80 Corridor have seen record prices due in part to interest rates remaining low.

For the remainder of 2004, investment sales activity in all segments should continue at a record level. Rising interest rates may cool activity somewhat, especially in the retail and apartment sectors, but savvy investors will continue to seek out and find opportunities with potential.

Jeffrey R. Dunne, Vice Chairman, CB Richard Ellis

©2004 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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