The Northern New Jersey commercial market teeters like a scale, leaving forecasters guessing whether growth or decline will tilt. This autumn, the fate of commercial real estate may rest not with investors andécorporations but with a potential amendment to the state constitution to increase commercial property taxes.
Thanks to the state’s Uniformity Clause, which sets all rates at the same level, property taxes are the bane of residents and landlords alike. The New Jersey State Legislature has once again put the issue up for reform, prompting state politicos to repeat the mantra, “Everything is on the table.”
Legislative action aside, the second quarter of 2006 saw an 18.4 percent vacancy rate, according to Cushman & Wakefield, a rise from the 18 percent in the same quarter of 2005. This is a meager increase, although vacancy in New Jersey is above the national average of 13.1 percent (which dropped 1.3 percent from the second quarter of 2005 to 2006, according to CB Richard Ellis).
Year-to-date leasing activity decreased in this period from 3.2 million square feet to 2.9 million square feet. Net absorption moved out of the positive, at negative 210,000 square feet, a 370,000-square-foot drop from the first quarter of 2006. Asking rents remained stable in the second quarter at an average of $25.34 per square foot, a 16-cent rise over the quarter before and an 89-cent increase over the second quarter of 2005, according to CBRE.
“To me, nothing stood out [in the second quarter data],” said Michael McGuinness, executive director of the New Jersey chapter of the National Association of Industrial and Office Properties.
McGuinness noted that the most important effect on the market will be the possible amendment to the Uniformity Clause.
“They’re trying to bring relief to homeowners,” McGuinness said of the state’s elected leaders. “If they were to do this, [commercial] taxes could go up 20, 30, 40 percent. It would have a huge impact on prospective tenants. It would cause businesses to move elsewhere.”
McGuinness also cites increasing traffic as a hindrance to New Jersey’s marketability. “Although one of the goals of [the Gov. Jon Corzine] administration has been to urge new development to the cities — and it is happening in most part — traffic is just getting worse,” he said, “and it doesn’t make those cities more attractive.”
New Jersey needs a more effective transportation system and a gas tax to support it, McGuinness said, or the state will lose corporations to competitors such as Pennsylvania, Westchester County, Connecticut and Long Island.