10B May 10 - 23, 2013 New Jersey Mid

Atlantic Real Estate Journal

www.marejournal.com

Central New Jersey

Seeing the big picture: Central New Jersey office rebounds from recession

By Matthew J. Dolly, Avison Young

he office market in Central New Jersey is beginning to show a consistent trend of improving occupancy levels, much like it did prior to the Great Recession. The overall vacancy rate Matthew J. Dolly has decreased for six of the past nine quarters, and while quarterly comparisons give some

indication of market direction, a more thorough picture develops when analyzing data over a longer period. When compared year-overyear, the overall vacancy rate is virtually unchanged as of the first quarter of 2013, as 20.3% of inventory is available for lease, compared to 20.0% a year ago. However, when studying the rate over a three-year period, the market appears to be improving at a steady pace. Prior to the Great Recession, the office market exhibited

improvement when comparing three-year trends for nine consecutive quarters ending during the first quarter of 2008. As the economy began to spiral downward, the office market trailed. For 16 quarters, vacancy rates climbed consistently. While the Great Recession lasted from December 2007 through June 2009, the National Bureau of Economic Research did not make it official until December 2008. Businesses, however, anticipated

the announcement throughout 2008 and the commercial real estate market lagged. For eight straight quarters between the second quarter of 2009 and the first quarter of 2011, vacancy rates were at least four points higher when making threeyear comparisons, peaking at 6.2% during the fourth quarter of 2010, immediately following the announcement that the recession ended in June 2009. The increase accounted for nearly 5.5 million s/f of space being returned to the market.

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During the past three years, the office market in Central New Jersey has begun to recover. Since the first quarter of 2010, the overall vacancy rate has declined by 1.9%, as nearly 1.4 million s/f of office space has been absorbed. When measuring over three years, the vacancy rate has decreased four consecutive quarters through the first quarter of 2013, though at more modest levels than during the previous three quarters. While certainly not at the level of consistency displayed prior to the Great Recession, it appears the office market is strengthening. Reasons for this success include demand return in the pharmaceutical sector and the popularity of commuter rail markets such as Princeton and Metro Park. In addition, tenants have been either renewing or extending their leases unless they find a compelling reason to make a costly move. While there is still a glut of space, there is not much that would be considered a trade up. As a result, new construction and newly renovated properties have become attractive. Examples include Church and Dwight, which recently took occupancy of a newly built, 250,000 s/f headquarters in Ewing. Eisner Amper and Hatch Mott MacDonald each signed leases at the new 111 Wood Ave. South in Metro Park. EMC Corp. signed a lease for 81,683 s/f at the newly renovated Center 78 in Warren, while Otsuka America Pharmaceutical and Blackrock Financial Management, Inc. moved into new construction at University Square in Princeton. Dr. Reddys Laboratories signed new leases at College Rd. in Princeton, and Novo Nordisk is renovating a 770,000 s/f facility in Plainsboro. This momentum is expected to continue despite some obstacles, including MetLifes announcement that it will close its Somerset office, which is a blow for the struggling Piscataway/ Somerset submarket. However, other large blocks such as the Bell Labs complex in Holmdel and the former Continental Insurance building in Cranbury are being redeveloped, which will take nearly 2.5 million s/f of unused space out of the equation, effectively lowering continued on page 12B