By Michael Fasano, Marcus & Millichap
The resumption of job growth in New Jersey, along with a new initiative launched by the Governor, will spur greater investment activity and strengthen demand for well-located commercial real estate, particularly apartments and retail properties. Prime multifamily assets, as well as Class A shopping centers and credit-tenanted net-leased buildings in suburban locations led the recovery in the last half of 2010 – and will continue to garner investor and user demand across the state in 2011.
The nonprofit group “Choose New Jersey” was created to attract and retain businesses in the state, an organization that has already spurred job growth in the state and sparked demand for commercial real estate. The group, which does not rely on taxpayer dollars, is funded by 15 New Jersey Companies who pledged to promote the word globally that the business climate in New Jersey has changed. Further bolstering New Jersey’s pro-business environment, which is sure to spark an even greater need for office and industrial space and apartments this year, Texas native and economic development veteran Tracey McDaniel was named executive director of Choose New Jersey in late 2010.
Despite some pockets of weakness in B and C urban locations, the New Jersey multifamily sector gathered momentum in 2010 and will continue to improve. Rents and vacancies are both forecast to grow in Northern, Central and Southern New Jersey through year’s end. Low interest rates and investor demand for properties in densely populated areas near major employment centers will maintain average statewide cap rates in the low-7 percent range through the first half of 2011. Interest in properties in Hudson County will intensify as recently completed rentals stabilize. In the central and southern regions of the state, strengthening tenant demand will sustain investors’ interest in local complexes.
Even though New Jersey’s retail market boasts one of the lowest vacancy rates in the United States, the sector still has room to improve. A severe reduction in property completions and resurgent space demand will underpin a 20 basis point decline in vacancy during 2011 to 7.6 percent. Attractive pricing could generate additional transactions in the months ahead. Much of the demand for viable and performing multi-tenant properties goes unfulfilled, with deal volume suppressed by a lack of listed product. Owners who have maintained property performance through the recession and the early stages of the recovery will likely find strong demand for their assets and limited competition from other for-sale properties. These owners may increasingly contemplate asset dispositions and reinvestment into properties with greater upside potential.
Michael J. Fasano is the vice president and regional manager of the New Jersey office of Marcus & Millichap Real Estate Investment Services. Contact him at michael.fasano@marcusmillichap.com or (201) 582-1000.