Commercial real estate in northern New Jersey has had a rough few years.
After the post-September 11 boom in the area, when businesses from Lower Manhattan moved to clearer and safer pastures, a construction boom in nearby cities like Jersey City took hold.
But, while international and local companies built up for the near term, few moved in. And, when temporary occupants left for their own reasons, their exits drove commercial vacancy rates to worrisome levels, with few prospective tenants on the horizon. The imbalance continues, say market observers.
Jersey City is perhaps the worst-hit of the towns across the Hudson.
As the Lower Manhattan market crashed, Jersey City’s rose; when tenants began planning to move back to New York after reconstruction Downtown began, prospects seemed lost in Jersey City. The two markets tended to act inversely.
Now, as commercial real estate in Midtown Manhattan is booming, Jersey City’s slow commercial growth feels all the more stagnant. Companies left with entire buildings are dividing up their big office towers into smaller spaces for sublet.
The vacancies are filling, though, albeit slowly, said both Daniel Frohwirth, director of real estate at the Jersey City Economic Development Corporation, and Cheryl Hardt, first vice president at CB Richard Ellis.
A recent market report released by CB Richard Ellis shows that between yearend 2004 and year-end 2005, net absorption increased by 4.04 million square feet and available space decreased by 3.61 million square feet in the northern and central New Jersey office market, which totals around 156 million square feet, including Jersey City. These numbers suggest that the market is in a positive upswing.
Between the fourth quarter of 2005 and the first of this year, the numbers were increasing at a similar rate. “There hasn’t been a dramatic change,” explained Hardt. “We’re moving in the right direction, we’re filling vacancies, but nothing drastic.”
Since Midtown Manhattan continues to get more expensive, Hardt predicts that pricing will soon rise to the point where larger companies and firms will look to open satellite offices outside of the area. She describes this type of move as decentralization: “Soon, businesses will again look across the river for a portion of the company to be relocated.”
The Jersey City office market is also trying to draw tenants from more similarly priced markets including Lower Manhattan, where the office market is only now showing signs of life after struggling since autumn 2001. The New Jersey state government continues to offer incentives that make moving across the river more appealing, said Frohwirth. These include tax abatements; grants from the state Department of Labor for customized training so that every new employee earns the company money from the government; and areas designated as Urban Enterprise Zones, which allow companies to buy office supplies free of taxes and receive tax returns for hiring local employees.
As Hardt points out, Downtown Manhattan might be less appealing right now because there are so many transportation and infrastructure projects still under construction.
One interesting aspect of the Jersey City story is how much subleasing is happening, and its effect on the types of businesses the area attracts. Companies like Charles Schwab. for instance, were left with entire buildings to subdivide. The 19-story Harborside Financial Center Plaza 10, on the Jersey City waterfront, is 100 percent leased to Schwab, with the company dividing the space into smaller parts to appeal to more potential tenants.
“What’s nice about this system of breaking up the parcels is that smaller segments can attract more diverse businesses, rather than the few large banking companies that tend to come to Jersey City,” said Frohwirth.
Hardt said that northern New Jersey has seen in recent years a number of new industries moving in, especially in media, publishing, and entertainment.
The slow market is in part a result of the trickle-down effect. Until the Midtown market reaches full swing, there will be little spillover. While vacancies are, in fact, steadily decreasing, there is little to suggest that in the near future there will be any kind of commercial boom.
While residential buildings are being planned and built every few months, the last new commercial building in Jersey City was completed in 2004. A cursory glance at the commercial real estate portfolio of a firm like Cushman & Wakefield reveals there are whole floors of large buildings totally unoccupied.
There is some promise, though: Frohwirth described a call he received in mid-April from an undisclosed company looking to place 2,500 workers in Jersey City, which he estimates might require up to 600,000 square feet. While this wouldn’t require a new building, deals like this suggest a more positive future for Jersey City.