NJ Spotlight

The odds are in favor of New Jersey?s commercial real estate market gradually pulling itself out of its recession and post-recession slump, with the office sector clearly trending upward and maybe turning a corner. That?s according to Kevin Thorpe, chief economist at national real estate services firm Cassidy Turley, who spoke at the firm?s New Jersey headquarters in Chatham late last month.

?The future is brightening without question in New Jersey and I?m not the only one saying this,? he said.

Thorpe said state-wide vacancies are down to just above 15 percent, reflecting the first improvement since vacancies hit their 21st century peak last year. The North and Central Jersey markets rank among the top 10 nationally in demand for office space. New Jersey?s need for office space has grown every month for more than a year, despite the fact that the nation?s overall demand has, according to Thorpe, been ?subpar? over the course of the recovery.

The National Association of Realtors (NAR) predicts vacancy rates nationwide will decline between 0.2 percent and 0.6 percent in the office, industrial, and retail markets from now until August 2014.

Lawrence Yun, NAR chief economist, expanded on this in a statement released in late August, ?Rising international trade is boosting demand for warehouse space.?

It?s the Jobs, Stupid

Why the optimism?

?The fundamentals of economy look very solid,? Thorpe said. ?It?s getting easier to see how something more robust could be forming.?

Thorpe puts the odds on a continued U.S. economic recovery at 84 percent and credits job growth as a primary factor. Although New Jersey?s unemployment rate remains above the national average, almost all of the state?s designated metropolitan areas are adding jobs at a rate that outpaces the rest of the country. The state created 49,000 net jobs last year and looks on pace to create 76,000 new jobs this year.

Construction jobs are back on the rise, as are those in financial and professional business services -- two industries that create the strongest demand for office space statewide. But the state?s pharmaceutical industry is still shrinking (as demonstrated by Merck?s announcement yesterday). And a prolonged government shutdown and continued federal sequester could threaten New Jersey?s 50,000 federal employees.

Newark and the Lesson of Morristown vs. Parsippany

Looking to specific markets, Moody?s is forecasting near-record job growth in the Newark and Edison metro markets in 2015-2016, with Newark metro already boasting one of the state?s hottest office markets, along with Princeton and Morristown. Thorpe said Newark and Edison metro are proving attractive to developers and CEOs because those who spent the recession investing exclusively in top-tier markets are now more comfortable seeking financing for projects in riskier locales.

?Now as we get closer to peak employment, it gets more attractive to build risk and reward into a portfolio,? Thorpe said.

Newark also makes perfect geographic sense for law firms and multinational companies because of its proximity to New York, a major international airport, and a federal court. Nevertheless, when Prudential employees move into new headquarters in the city, they?ll abandon 800,000 square feet of leased space in The Gateway Center.

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