If you think that the commercial leasing velocity has slowed down in Manhattan, all you have to do is look across the Hudson River to New Jersey and see an office leasing market that has been on life support for the past few years.
According to a recent report issued by CB Richard Ellis on the New Jersey office market, leasing velocity continued to decline in the first quarter of this year, asking rents slipped and availability rates increased from last quarter, closing at 20.43 percent, the first time the market has hit 20 percent since 2004.
In a conference call with analysts, Mack-Cali Realty, one of the largest owners of office space in New Jersey, noted that rents rolled down during the quarter by about 6.1 percent compared to the fourth quarter of 2008. In its core markets, North and Central New Jersey, the company had roll downs of 6.4 percent and 7.5 percent respectively.
Mitchell Hersh, president and CEO of Mack-Cali, said: “Harsco Corporation, a long-term tenant in our Mack-Cali Center Two in Paramus, exercised the lease renewal for approximately 22,000 square feet. The prior premises consisted of approximately 31,500 square feet,” amounting to a 30 percent reduction in occupied space and a 17.5 percent roll down in the rents.
Businesses remain reluctant to make office space decisions and when they do, they’re looking for shorter lease terms generally, lower rental rates and more flexibility.
David Welsh, managing principal and founder of Normandy Real Estate, and Anthony DiTommaso, co-CEO of Ivy Equities, participating at the May 27 New York Real Estate Summit, both feel that the New Jersey market is anemic. The consolidation of the pharmaceutical companies and lack of government incentives for companies to relocate are causing serious problems in the market.
CBRE senior managing director Jeff Hipschman said in a release about the New Jersey report, “Clearly, the New Jersey office market has felt the impact of the national credit crisis at the close of the first quarter, with asking rates dropping, availability increasing and an overall decline in the leasing activity. However, despite the challenges in the office sector across the tri-state area, high-end facilities will continue to come on the market at competitive prices, allowing owners to better position themselves as market conditions begin to level off during the next three quarters of 2009.”
For many years, when the leasing market was strong in New York City, a number of companies evaluated the opportunity to save costs in New Jersey. Today, with the price differential shrinking, fewer companies are considering relocating to New Jersey. With the exception of moves to the gold coast of Jersey City and Hoboken, few large companies have relocated to New Jersey over the past five years.
Michael Stoler is a columnist for The Real Deal and host of real estate programs “The Stoler Report” and “Building New York” on CUNY TV and on WEGTV in East Hampton. His radio show, “The Michael Stoler Real Estate Report,” airs on 1010 WINS on Saturdays and Sundays. Stoler is a director at Madison Realty Capital as well as an adjunct professor at NYU Real Estate Institute, and a former contributing editor and columnist for the New York Sun.