Prepared by: David Simson, President, GVA Williams of NJ

While we reflect on the past year in the office sector throughout New Jersey there are a few positive economic indicators which offer excitement and optimism.  Clearly, expected improvement of economic performance in corporate earnings in conjunction with increased corporate spending on employment growth may begin to stabilize the overall vacancy factor, rental rates and concession packages that exist in today’s market. 

The current vacancy rate throughout northern New Jersey is 19.6 % which compares to 18.9% at the end of 2002.  Although we witnessed a slight increase in availability, signs of improvement become more visible.   New Jersey offers stability with its respective infrastructure of 170 million square feet of multi-tenanted office space, ranking 5th largest in the United States.  New Jersey’s labor force, highway accessibility and quality of life fares well in comparison to all competitive, nationwide markets.  The positive trends during this past year were lead by four (4) industries serving as the catalyst for absorption which include pharmaceutical, mortgage brokerage firms and their affiliates, the legal profession and Business Continuity Facilities.   A few highlights of 2003  include the leasing of 233,000 square feet by Dendrite in Somerset;  200,000 square feet by Kathryn Gibbs in Livingston; 154,000 square feet and 112,000 square feet by Pfizer in Parsippany;   115,000 square feet by Biovail Corp in Bridgewater;  108,000 square feet by Altana Pharma in Florham Park;  139,000 square feet by Reckitt Benckiser Headquarters in Parsippany; 108,000 square feet by Bank of New York in Somerset County  and  111,000 square feet by Tyco in Princeton.  This past year witnessed 11 new office leases in excess of 100,000 square feet.

As we hope business spending turns the corner in a positive direction, our history has indicated it generally does so in a big way.  If this cycle  teaches any lessons,  it is likely that the bottom of the corporate investment cycle will usually have seen bigger cut-backs that are warranted by prospective demand conditions.  Consequently, the recovery, when it comes, may be stronger than many expect; but the risks on relying on increased business spending for the economy recovery are two sided.  The downside is that increased business spending and hiring may continue to be delayed by restructuring, corporate caution and/or unanticipated external events such as the current unstable political environment throughout the World.

Although demand in the office market was the softest that New Jersey has witnessed in a decade there was clearly a disconnect with regard to the investment sector.  More and more investment dollars are heading for real estate in New Jersey due to historically   low 40 year interest rates, recent disenchantment with the stock market and the caution of any promise of a relatively safe and steady income stream. The first three quarters of 2003 offered an abundance of purchasers competing for well stabilized, highly financiable buildings which include strong credit tenants located in submarkets perceived with a deep infrastructure with an income stream that offers a prospective purchaser a comfort zone for at least the next three (3) years.

Several challenges await the real estate market in 2004.  Clearly, the hope and optimism of the commitment of corporate America to re-deploy capital toward job growth will be the impetus to the success.  It is also imperative the segmented corporate strength of 2003 continues to grow in 2004 including the biotech firms, pharmaceutical firms (there are 25 multi-national pharmaceutical companies that have either established New Jersey as their world headquarters, their US headquarters or a major regional R&D facility in New Jersey) as well as Business Continuity / back up centers.
It seems clear that property market fundamentals cannot begin to improve materially until the business sector has enough confidence to begin investing in equipment and labor again.  The longer the corporate sector takes to recover and the longer reinvestment is delayed, the less likely we will see rapid improvement in the fundamentals of the office market.

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With regional headquarters in Parsippany, New Jersey, GVA Williams employs a staff of over 250 professionals in the Tri-State region.  GVA Williams is a full-service real estate firm that fulfills the needs of owners, investors and tenants, offering expertise in leasing, investment sales, mortgage brokerage, property, construction and asset management, as well as corporate services.  GVA Williams currently manages over 200 commercial properties occupying 19.1 million square feet in the Tri-State region.

GVA Williams is a founding partner of GVA Worldwide, an international strategic partnership of real estate industry leaders in key markets in 27 countries. The partnership includes 3,600 real estate professionals serving approximately 100 markets.  In its last report, GVA Worldwide partners completed $12 billion in transactions and currently manages over 100 million square feet of office, industrial, retail and specialized property.

For more information please contact the GVA Williams, Parsippany, New Jersey headquarters at 973-299-3000 or visit www.gvawilliams.com.