6B — March 30 - April 12, 2012 — Commercial Office Spotlight — Mid Atlantic Real Estate Journal


C OMMERCIAL O FFICE S POTLIGHT By Michael J. Fasano, Marcus & Millichap Real Estate Investment Services

Tax incentives help revive New Jersey office market


nvestors in New Jersey office buildings can pre- pare for an improving,

sales, exports and corporate profits all beat predictions in the last few months of 2011, which bodes well for both the national and New Jersey of- fice sector. Operations in New Jersey will log modest improve- ments this year as tax in- centives spur demand for office space and corporations expand their presence. The new $200 million GrowNJ Assistance Program will extend tax credits to enti- ties ineligible for the Urban Transit Hub Tax credit. The

programwill encourage busi- nesses in suburban areas to expand, while helping operators struggling to find tenants backfill empty space. Meanwhile, Bayer Health- Care will consolidate its East Coast operations in 2013 and relocate 2,500 employees to the former Alcatel-Lucent property in the Hanover Township. Leasing activity will pick up in the area this year as companies upgrade to Class A space near the site. In Central New Jersey, Novo Nordisk, Inc. committed to 770,000 square feet at the

former Merrill Lynch facility in Plainsboro, increasing its footprint by 150,000 square feet. The move will create 1,000 new jobs. However, 550,000 square feet of space will be vacated in Princeton and could take several quar- ters to absorb. Global volatility and com- pressed yields in the financial markets will drive institu- tions to expand their real estate portfolios, while local buyers target distressed note sales. Lower price points and higher upside will entice in-

stitutions from Manhattan to deploy capital into trophy properties in Northern New Jersey, where assets can trade at cap rates hovering around 6.5 percent. Life in- surance companies will be the primary lenders of stabilized Class A buildings in the area while cash-heavy investors will target underperform- ing top-tier properties. After addressing deferred main- tenance and re-tenanting these operators will refinance and redeploy the equity. In Southern Jersey, activity will be dominated by REO and note sales. High-net-worth individuals will target notes trading at a discount and collect the monthly debt ser- vice. Conversely, value-add investors will foreclose and stabilize the asset to boost cash flow. As the year progresses, local investors will target value-add Class B/C proper- ties in Monmouth and Ocean counties to achieve higher up- side. Elsewhere, prestigious office districts in Middlesex and Mercer counties will garner keen interest from conservative out-of-state buyers. Key Metrics for 2012 • Employment Forecast: Companies with operations in New Jersey will hire 46,000 workers by year’s end, growth of 1.2 percent. The office-us- ing sectors will gain 11,500 positions. • Construction Forecast: In 2012, 500,000 square feet of Class A office space will come online, expanding statewide inventory by 0.3 percent. • Vacancy Forecast: Va- cancy in New Jersey will fall 40 basis points by the end of 2012 to 19.4 percent, which will offset the 40-basis-point increase last year. • Rent Forecast: Asking rents will climb 0.6 percent by year’s end to $25.85 per square foot. Effective rents, meanwhile, will jump 1 per- cent to $21.35 per square foot. Michael J. Fasano is the vice president and region- al manager of the New Jersey office of Marcus & Millichap Real Estate In- vestment Services. ■

but gradual recovery in s p a c e d e - mand thi s y e a r. Th e office sector will be bol- stered by the impr ov i ng r e g i o n a l

Michael J. Fasano

economy, which defied ex- pectations of a double-dip recession following the U.S. debt downgrade in August of last year. Job growth, retail



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