It was only two years ago that South Jersey's office market was still feeling the pain.
Vacancy was stuck near 20 percent. Banks were taking back buildings from landlords. And the industries that drive leasing activity in the region had contracted during the recession.
These days, however, experts say the market is turning the corner.
“Expansion has clearly come back to the market,” said Jason Wolf, founder and principal of Marlton-based Wolf Commercial Real Estate. “I’m not going say the pace has been terrific, but we’re seeing companies growing again. These are small to midsized businesses, which is the heart and soul of our market.”
The firm, which tracks about 17.5 million square feet of office space in Burlington, Camden and Gloucester counties, found that midyear vacancy in those areas was about 13.6 percent. That’s down from about 14.5 percent in the first quarter — and a far cry from the high vacancy that plagued the market at its low point in 2008.
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Wolf said the improvement is tied largely to upticks in hiring, which can be said for any office market but is perhaps more pronounced in South Jersey. The market of mostly low-rise, 100,000-square-foot buildings is generally self-contained and sees little movement in or out among tenants, so space absorption goes hand in hand with job growth at the companies that already have a footprint.
And that expansion is taking place across several of the sectors that anchor South Jersey, he said, including health care, finance and technology. On Tuesday, Wolf’s firm said Virtua Health Inc. expanded by 10,000 square feet to 28,650 square feet at 2000 Crawford Place in Mount Laurel, a property represented by the brokerage firm.
Experts say Burlington County has seen the most improvement in recent years, including Destination Maternity’s 74,000-square-foot lease in Moorestown. The deal, a rare relocation of a corporate headquarters from Philadelphia, will bring the clothing maker to an office park owned by Keystone Property Group, thanks largely to a $40 million state tax credit.
RELATED: Keystone Property Group inks Moorestown deal with Destination Maternity
It’s also part of the momentum in the so-called 3M submarket of Mount Laurel, Moorestown and Marlton, the strongest swath of South Jersey and one that experts say benefits from its proximity to the New Jersey Turnpike and Interstate 295. According to brokers in JLL’s Cherry Hill office, vacancy in the submarket is just under 10 percent.
“You’ve got a lot of top-level executives who live in those markets … and they typically locate their offices close to home,” said Dan Close, a senior associate based in JLL’s Cherry Hill office.
But it’s not all good news, even in the 3M market. At the same Moorestown Corporate Complex, engineering firm Chicago Bridge & Iron vacated its space more than two years before its lease expires, placing 75,000 square feet of space on the market for sublease.
And Camden County continues to struggle overall, especially in suburbs such as Cherry Hill. Brokers say the township, which long benefited from its proximity to Philadelphia, has taken a backseat to options closer to I-295 and the Turnpike.
That’s not to say the county is altogether dormant. The city of Camden is riding a recent wave of positive deals, driven by the power incentives offered under last year’s Economic Opportunity Act, including a new headquarters and practice facility for the Philadelphia 76ers and a new manufacturing facility for Holtec International.
And in a market that’s still too oversupplied to support new construction, Wolf said, increased demand in Burlington County could push activity southward.
“Because Burlington County has gotten so much tighter, all that traffic is now going into Camden County, which has been a positive,” Wolf said.
And many of South Jersey’s longtime office landlords are shifting their strategy, pruning their office portfolios in order to focus on other areas, said Rick Widerman, an executive vice president with JLL. That includes publicly traded entities such as Brandywine Realty Trust and Liberty Property Trust, which have put many of their properties on the market over the past year.
That could mean a new lease on life and a fresh cash infusion for some buildings in need of upgrades.
“That’s creating opportunities for nonpublic companies — privately owned, opportunistic money — to come in and buy properties, in some cases, inexpensively,” Widerman said.
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