Vacancy rates in northern and central New Jersey's office and industrial real estate markets showed slight improvement in the second quarter of 2012, but the pace has remained slow, with lags in employment growth, according to a quarterly report by Cushman & Wakefield's New Jersey operations.
"The story in New Jersey, from an economic perspective, is one of improvement in 2012, but it hasn't yet filtered down to the commercial real estate sector, as the jobs being added are in categories not directly related to office occupancy," said Ken McCarthy, senior economist and senior managing director at the firm. "Hiring has been cautious and tenants have been cautious, as well. Leasing activity is down 20 percent from a year ago, so that caution is being reflected in this data."
In the class A commercial market, vacancy in northern New Jersey nudged down from 20 percent in the first quarter to 19.8 percent in the second quarter, and fell slightly, from 23.6 percent to 22.5 percent, in Central Jersey. Changes in vacancy for the class B and C office markets fared the same, resulting in an overall vacancy rate of 18.5 percent in the second quarter — only 0.4 percentage points lower than the overall rate in the first quarter.
In the industrial market, vacancy only fell from 10.3 percent to 9.9 percent in North Jersey, and from 9.4 percent to 8.6 percent in Central Jersey.
According to the report, the drop in vacancy in the Central Jersey industrial market outpaced the northern part of the state, partially as a result of lower rental rates, since warehouse and distribution space was leased for an average of $4.21 per square foot in Central Jersey in the second quarter of the year, compared to $5.83 per square foot in North Jersey.
"The urban corridor has seen most of the activity, and suburban markets are very far behind, but I do think it will get better," McCarthy said. "What happens is cities start to get expensive in rents, and then corporate tenants think about where they can best use funds more efficiently, and they start to look more in suburban markets. But that will definitely take a while."