Commercial real estate companies assess New Jersey market

Office vacancies just one of the signs for commercial real estate companies in gauging economy.

According to a recent article in The Star-Ledger, signs that point to a healthy economy could be determined by taking a look at activity in the commercial real estate sector.   

"Commercial real estate is in lockstep with jobs," Matt McDonough, managing director at Transwestern, told reporters. "When you see 20 percent office vacancy rates, you know jobs are down."

McDonough said that, in a typical healthy market, one would expect a vacancy rate hovering around 10 percent. However, in the past 9 years, the office vacancy rate has fluctuated between 17 and 19 percent, with some counties, such as Monmouth and Morris, seeing vacancies climb as high as 29 percent.

Unemployment a factor
Despite national unemployment estimations lingering around 7.6 percent, the New Jersey unemployment rate sits at 9 percent, down from 9.3 percent in February.  There are approximately 415,000 people currently unemployed. Those figures have undergone little fluctuation since March of last year.  

When compared to other states, New Jersey's unemployment figures fair on the higher end of the spectrum.

"Real estate grows based on the expansion of the economy," Paul Profetta, a member of Rutgers Business School board of advisers, said. "When you have 3 percent, 4 percent, 5 percent GDP growth you have expansion. Companies are taking more space, they're hiring more people. We don't have that today. We're really muddling along at 1.5 to 2 percent growth. We're basically treading water."

Profetta pointed out that commercial real estate isn't as attractive as it was pre-recession. And while the industrial warehouse segment has seen positive growth, the state still needs to lure back the 60,000 jobs it lost in between 2002 and 2010. One possible reason for New Jersey's sluggishness is its geography.

According to a recent Lehigh Valley Business Journal article, construction on the Madison Farms development in Bethlehem Township, valued at over $100 million, began this summer. What sets this apart from other developments is that it is being lead by a New Jersey developer in what appears to be a westward expansion of commercial real estate interests.

"We're running out of tenants in New Jersey because they're all coming here," Jeffrey Persky, executive vice president of Kushner Real Estate, said. "The real action seems to be happening in Pennsylvania. You have a better business climate."

With an unemployment rate of 7.9 percent and 19,000 people finding jobs in March, the correlation between employment and commercial real estate is clear. The office vacancy rate in Pennsylvania stands at 8.1 percent.

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