Tight class A market offers challenges, opportunities - Focus On: Spotlight on New Jersey

In the first half of 1998, the Northern and Central New Jersey office space markets have continued their robust trend, presenting both challenges and opportunities for every segment of the commercial real estate industry. Even with rising rents, the vacancy rate in Class A, B and C declined to single-digit levels at 8.87 % - down from 11.58 percent a year ago, according to the Research Division of CB Richard Ellis, Inc. (NYSE:CBG).

Specifically, the vacancy rates of the prestigious markets of Morris, Middlesex and Bergen counties are at 5.95 percent, 10.81 percent and 7.36 percent, respectively. By contrast, the vacancy rates tend to be higher in the counties' B and C markets (9.53 percent, 16.04 percent and 11.53 percent, respectively) which offer lower rents ($16.50, $17.06 and $16.41, respectively). The second quarter's average asking gross lease rate is $20.88 per square foot (plus tenant electric), up from last year's $18.64 rate for the same time period.

Statistically, New Jersey ranks fifth nationally in total square footage for multi-tenant office buildings, according to CB Richard Ellis, which tracks approximately 1,185 office properties in 57 U.S. markets (each containing 30,000 square feet or more of net rentable area in North and Central Jersey).

All of these statistics point to an extremely tight marketplace and a difficult environment for companies in search of contiguous blocks of Class A space.

Two main factors which have impacted the availability of quality space in the Garden State are the robust economy and the changing needs of the evolving corporate environment.

The fact that businesses are hard-pressed to find suitable space within existing inventory has created challenges for end-users, as well as real estate services providers. Looking at the big picture, CB/Hampshire and CB Richard Ellis also believe that there are opportunities in utilizing tight Class A markets as springboards to assist institutional owners in renovating and enhancing the value of their existing B and C portfolios, as well as marketing build-to-suit opportunities. Through innovative marketing and modernization programs, we've become a driving force in the repositioning of many Class B and C properties, creating substantial value for our clients.

In Newark, 33 Washington Street is a prime example of a prestigious property that has been successfully repositioned. The 428,000 square-foot building, purchased by Townsend Properties Trust, L.P., of Towson, Maryland in November 1997, offers on-site parking for 250 cars, 24-hour computer floors and a corporate cafeteria. Additionally, the premier property is undergoing an extensive interior renovation, further enhancing the desirability of the building. The overall project, set to cost about $4 million, consists of an upgrading of the building's mechanical, electrical and life/safety systems.

Dudley Ryan, senior vice president of CB Richard Ellis, who's handling the marketing, said "The lighting in the lobby is going to be significantly increased, providing a warmer and more inviting lobby atmosphere to welcome you into the building. In addition, a new ceiling and siding treatments are being added to unify the color scheme in the lobby, as well as in elevator cabs and common areas of the high-rise floors (11 through 18) of the building. The upgrade will also include a half-dozen new chandeliers in the lobby and the inlaying of granite and marble in the lobby's existing terrazzo floor."

"There is space available on the high-rise floors of this extremely well-located property," Ryan added. "In fact, it is one of the few large blocks (200,000 square feet) of existing office space currently available."

In addition, the 19-story building is strategically located adjacent to the Newark Museum, just a half-block from the new four-way interchange at Interstate 280 and near the Broad Street Train Station, which offers direct service to Manhattan via New Jersey Transit's "Mid-Town Direct." Moreover, the office complex, located near the New Jersey Performing Arts Center (NJPAC), the proposed minor league baseball stadium and Penn Station, is one of the mainstays helping to revitalize Newark, dubbed "The Gateway City."

Another property doing well in this strong market is Overlook at Great Notch, owned by Theta Holding Company, L.P., and located at 150 Clove Road in Little Falls, NJ. The Kwasha Lipton Group of Fort Lee, NJ, a wholly-owned subsidiary of the international accounting firm of Pricewaterhouse Coopers LLP, recently signed a 120,000 square-foot lease, punctuating a successful 10-month repositioning of the 425,000 square-foot Class A complex, and bringing the building to a nearly full-occupancy level.

Now that Theta Holdings has accomplished the building's repositioning, the company is offering an outstanding opportunity for a build-to-suit development - Overlook II at Great Notch - on a tract adjacent to the complex.

Like Overlook I, the proposed building site is well located with convenient access to major roadways (Routes 3, 46 and 80, Garden State Parkway and the NJ Turnpike), making it easy to get to New York and other parts of New Jersey.

These examples of build-to-suit opportunities, modernization programs and blockbuster lease transactions, along with various economic indicators, show that the robust market in all class categories should continue for the foreseeable future.

COPYRIGHT 1998 Hagedorn Publication
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