After several rocky years, the Northern New Jersey economy has regained its footing and, mirroring the statewide trend, has reached a record employment level.

Following three years of job losses, the 11-county Northern New Jersey Region created almost 30,000 jobs--or 53% of the state's total--during the first nine months of 2004, relates a fourth quarter New Jersey office market report from national commercial real estate services firm Studley.

While downsizing continued in several industries--including manufacturing; trade, transportation, and utilities; and information--employment grew in a number of key sectors. Strong gains were produced by government and by business and financial services.

The professional and business services sector grew significantly, adding an additional 10,700 new jobs. Other industries that saw strong job gains include health, education and social services (+6,500); financial services (+6,500); the leisure/ hospitality sector (+3,400); and the construction industry (+2,200), the report found.

Most saliently for the office market, economic growth has triggered a moderate increase in office-related employment. Hiring and expansion/relocation plans that once were shelved are now coming to life with a sense of urgency.

Additionally, the industrial market is entering very exciting times, according to the report. After many years of minimal growth, New Jersey's port activity has regained momentum.

The healthy economy, along with a favorable export environment, has spurred the growth of port-related distribution and warehousing activities throughout the state.

A substantial number of projects are supporting a resurgence in tenant and investor interest in the industrial market in Northern New Jersey.

One of these projects is the $280 million expansion and modernization of Newark Liberty International Airport.

Northern New Jersey's office market seems to be emerging from a year-long period of adjustment. The overall availability rate hovered in the 16% range for most of 2004--an improvement over the much higher 17-18% range for the previous year.

However, the market has a way to go before reaching the more balanced environment that accompanies rates in the 10% range--as was the case at the beginning of the decade.

The region's overall availability rate for the fourth quarter stood at 16.9%, lower than at year-end 2003 (17.3%), but slightly higher than the previous quarter's rate at 16.5%. At 19.0%, the Class A availability rate remained flat compared to 2003 but was 0.7 points higher than in the previous quarter.

The report noted that overall rent continued to drift downward. At year-end 2004, overall rent was $23.00, a 1% decline from a year ago and a 7% drop from the peak at the end of 2001. The impact of slow market demand on Class A rent has been more pronounced. For the year, Class A rent fell by 2% and declined by 13% from its peak. The overall rent decline in several submarkets was sharper than the regional average. These submarkets included Wet Bergen (-7.5%), Route 22/Parkway Corridor (-3.6%) and Urban Essex (-3.3%). Conversely, overall rent increased in Princeton (+3.1%), East Bergen (+2.5%) and the Meadowlands (+2.4%).

Overall leasing activity increased sharply in 2004--surpassing the 2003 level by 28% and the 2002 level by 18%. However, 2004 leasing, 10.6 msf, still represented activity well below the frenetic pace set during the dotcom boom, when annual leasing totaled more than 15 msf. Class A leasing in 2004 expanded by almost 72% to 7.5 msf.

Economic improvement and employment gains are expected to continue in 2005 with consequent benefit to the office space market. Within the region, especially strong activity is expected for the Waterfront, the Meadowlands and selected areas of Newark.

With demand increasing, the pace of leasing activity should quicken and rents should stabilize during the coming months, the report concluded.

COPYRIGHT 2005 Hagedorn Publication

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