C — July 26 - August 15, 2013 — Brokerage Directory — Mid Atlantic Real Estate Journal
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Office Market Update Wcre finds substantial spike in Southern NJ Cre deal activity, but new questions arise
E
very quarter WCRE surveys the Southern New Jersey office mar-
in the stock market, which helped boost confidence, and has helped set the tone for a more bullish atmosphere in commercial real estate. The stock market is up almost 12% YTD, and the Dow Jones Industrial Average ended the second quarter at 14,909, log- ging its best first half of a year since 1999. The commercial real estate recovery, although slow, has been underway with steadily improving fundamen- tals, climbing rental rates, and low interest rates. Demand for office space in the Southern New Jersey office market during the second quar-
ter continued to move upward at a cautious pace, with new deal activity representing 35% of all transactions, down from 43% in the first quarter. While the overall vacancy rate for our region continues to hover in the upper teens (18-19%), rental rates continue their upward climb back and have stabilized. Many deals of significant size were completed during the second quarter, with properties in prime locations continuing to out-perform the overall mar- ket vacancy rate. Q2 showed 540,000 s/f of new lease deals and renewals executed, a gain
of nearly 20% compared to the second quarter of 2012. Many of the lease transactions were for government services, insur- ance, healthcare, legal, and financial/mortgage services. On a down note, Pennsauken and the west side of Cherry Hill in Camden County are home to a large proportion of the overall vacancy in the marketplace, es- pecially around the Executive Campus and Haddonfield Road office corridor. This area has 2.7 million s/f of office space, of which 28% is currently va- cant. Lockheed Martin’s lease at 2339 Rte. 70 in Cherry Hill ended during the quarter,
which brought another 81,500 s/f of vacancy to the west side. Employment growth contin- ues to improve, both in New Jersey and nationwide. New Jersey’s jobless rate dropped from 9.3% at the end of Q1 to 8.6% in Q2, which is four consecutive months of decline. Figures continue to improve from last year’s 35-year-high of 9.8%, but the state rate remains well above the na- tional rate of 7.6%. Even amid this improvement we are still seeing employers working to consolidate and reduce the amount of space needed per employee, especially in higher rent areas. Many businesses are shifting toward increased space efficiency and collabora- tive environments. There are still no signs of significant office construction. Until the Southern New Jersey region absorbs its surplus of vacant space, most new construction will be geared toward build-to- suits or specialty opportunities. One notable example is Subaru of America’s search for 250,000 s/f, which is causing fierce com- petition between Philadelphia and Cherry Hill Township. Several sites in Cherry Hill are currently under consideration for developing a new headquar- ter facility for Subaru. Inventory, Transactions, and Rates • Overall vacancy of A & B product in the office and flex market is still hovering in the 18-19% range, with the mar- ket continuing its slow climb back and average rental rates continuing to rise compared to 2011 and 2012 figures. • Average rents for class A & B product continue to show strong support in the range of $10.00-$14.00/sf NNN with an overall market average showing strong support in the $11.00/sf NNN for the deals completed during the second quarter. • New lease deal activity for the second quarter is in the range of 185,000 s/f of new deals and/or expansions. This is 42% above first quarter 2012 figures. This positive trend in- dicates improving growth and an improving labor market, and shows that businesses are gaining confidence in the local market. Still, more robust job growth is needed in order to significantly lower the overall vacancy in our region. Jason Wolf is principal at WCRE. n
ket and pro- vides analy- sis of a vari- ety of factors that affect its overall per- f o r m a n c e . Our market r e s e a r c h comprises 16
Jason Wolf
million s/f of class A & B office and flex product in Burling- ton, Camden, and Gloucester Counties. The second quarter of 2013 saw a continuing rebound
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