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Sounding alarm in Jersey City as banking sector's footprint starts to shrink

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Experts say other industries must enter Jersey City as the banking sector contracts.
Experts say other industries must enter Jersey City as the banking sector contracts. - ()

It's been four years since Depository Trust & Clearing Corp. unveiled plans to move 1,600 employees to Jersey City.

But by the time those first staffers crossed the Hudson, in December, they found an office market heading toward a crossroad.

The banking firms that helped build Wall Street West are shrinking their footprints as their leases expire, and insiders say new industries will have to fill the large blocks of space these tenants are leaving on the waterfront.

"Jersey City became almost too concentrated in one industry group," said Gil Medina, an executive vice president with CBRE, in Saddle Brook. "And when that industry group needed to adjust its headcount, it affected Jersey City disproportionately."

Vacancy in the waterfront submarket is 10 percent, according to data from Cushman & Wakefield. That's still among the lowest rates statewide — and only half the overall market average — but experts said its recent performance is raising eyebrows. Leasing activity through the second quarter has barely exceeded 200,000 square feet, down 50 percent from midyear 2012.

But Medina and other experts are far from sounding the alarm for office hubs on New Jersey's Gold Coast, such as Hoboken and Weehawken. The markets are still rich in amenities and transportation infrastructure — not to mention newer and cheaper stock than Manhattan — and there are early signs that sectors such as technology, media and publishing can fill the void left by the banking industry.

A high-profile deal completed last year is perhaps one example. In Hoboken, Pearson Education preleased about 40 percent of a 520,000-square-foot tower being built by SJP Properties. The textbook publisher will anchor the third phase of SJP's Waterfront Corporate Center, which has housed both publishing and financial services firms for more than a decade.

Brokers also point to growth in other sectors along the waterfront, thanks to many smaller and midsized deals. Computer and technology firms took nearly 340,000 square feet from 2010 through the second quarter this year — triple the total from 2006 through 2009, according to Cushman & Wakefield. Among them: Scivantage and AvePoint Inc., software firms that lease 42,000 and 35,000 square feet in Jersey City, respectively.

Jeffrey Schotz, SJP's executive vice president for leasing and marketing, said he expects the new industries "to be the driver of the market going forward." And they won't see the waterfront as simply back-office space — as it often was for the financial sector.

"It's not just overflow," Schotz said. "It's the ability to take groups of people and move them out into new real estate that is much more functional and much more productive — and less expensive to operate — than the offices in New York."

Like many other owners, SJP also is marketing space that's been shed by a banking firm. Earlier this year, Merrill Lynch vacated two floors at 95 Greene St., in Jersey City, which Schotz said is drawing interest.

But it's certainly not the only large block to hit the market along the waterfront. A decade after opening its 42-story tower in Jersey City, Goldman Sachs has sought to sublease some 300,000 square feet atop the landmark building

And Medina, of CBRE, rattled off several other Jersey City buildings where multiple floors will soon become available, though he said it's more a reflection of cutbacks in the financial sector than of the quality of the space. He expected vacancy in the submarket to rise another 3 or 4 percentage points by early next year.

Filling the void left by the finance industry is top of mind for Steven Fulop, a former Goldman trader who became Jersey City's mayor in July. But he said he's less focused on specific industries and more on size — namely, small and midsized firms that "have outgrown their office space and (are) looking for alternatives," but need a more affordable option than Manhattan.

"The midsized company that's growing is kind of underneath the radar," Fulop said. "So that's obviously given us an opportunity that's kind of a sweet spot."

Plans to incentivize companies based on job creation have been built into the city's new tax abatement policy, which Fulop unveiled last month. He also said the outcome of New York's upcoming mayoral election could impact his strategy — if Michael Bloomberg's successor turns out to be less aggressive about economic development, it could embolden Jersey City to go after larger employers, he said.

The good news is that ownership along the waterfront is stable, Schotz said. Besides SJP, the submarket is anchored by top-tier landlords such as Mack-Cali Realty Corp. and the LeFrak Organization, which maintain quality buildings.

"They're all good assets and good owners, and that's going to have a big impact on the stability and leasing of the product as it becomes available." Schotz said.

E-mail to: joshb@njbiz.com
On Twitter: @joshburdnj

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