Jones Lang LaSalle


Slow Job Growth Remains Concern for Office Sector
Friday, March 3, 2006
By Eric Peterson

NEWARK-New Jersey’s economy is growing, but it lags the US and job growth could amount to just 1% this year. That was the message delivered by Rae D. Rosen, senior economist and assistant VP of the Federal Reserve Bank of New York at a real estate market forecast meeting of the Regional Business Partnership here yesterday. On top of that, most of the growth that is occurring involves lower-end service jobs, while more high-end jobs are moving out of state.

The problem for real estate, explained Thomas V. Giannone senior director at Cushman & Wakefield of NJ, East Rutherford, is that the overall office vacancy rate in Northern and Central New Jersey is 20%. With growth in high-end office jobs lagging, it’s going to be tough to bring that number down.

On the one hand, "office leasing activity has picked up by 30%, which is great news, and there were several very large transactions last year," Giannone told the group. "The problem is that some of the largest transactions were tenant movement and not tenant expansion, so the activity doesn’t translate into net absorption. Net absorption was actually down a little."

Even so, office properties remain a target in terms of investment sales. "Activity has picked up substantially - a 25% increase this past year over the year before," Giannone said. "If you’re on the investment sales side, you’ve had a very good two years. If you’re on the leasing side, it’s been tough."

On the industrial side, "the story is substantially better," Giannone said. "Lots of goods are being moved around." And in terms of the health of the market, "the vacancy rate is 6.3%, although that has crept up a bit because of spec development." But most of the activity involves warehousing and distribution, and the state "continues to lose manufacturing jobs."

For the larger picture, Rosen suggested that the state "address the competitiveness issue." In particular, she suggested a regional approach in the biotech/pharma sector, urging New Jersey with its pharmaceutical industry strength and New York with its medical schools to team up to form a united front.

Giannone agreed: "In terms of incentives, New Jersey and New York compete with each other. We should stop picking each other’s pockets.

The program also included a panel addressing urban redevelopment in the Garden State. Moderator Ted Zangari, a partner in the Sills Cummis law firm in Newark, picked up on the state’s "smart growth" agenda, stressing that the key to continued growth and solving the state’s budget deficit is to "attract business and retail to the cities. People like to live near where they work and near transportation."

But development isn’t always viewed in the best light, especially in a state with a high home rule quotient and 566 separate municipalities. Thomas S. Michnewicz, SVP at Advance Realty Group, Bedminster, NJ, stressed that the key "is outreach to the community to find out what they need. That’s part of gathering support."

Arthur R. Stern, CEO of Cogswell Realty Group of New York City, whose company is a key player in Downtown Newark, told the group that "we have always been very candid about our projects. It’s a matter of ‘open book’ and ‘open dialogue’."

L. Robert Lieb, chairman of Mountain Development Corp., said that developers should strive to "form a partnership with local officials. You have to be reasonable, and politics is still an issue," he conceded. "You have to try to create a viable partnership, know what you can and can’t do. We bring the financials to the table."

And Jeffrey Greenberg, principal of the locally based Heritage Management Group, noted that "it takes a lot of patience to work through the local building departments." And in general, the whole process of urban development "takes a lot of patience."

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