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Companies Find the Moving Is Easy in N.J.
Vacancies still higher than city

By ERIC HERMANN
Daily News Business Writer

February 25, 2002

After Sept. 11, many Manhattan-based companies looked across the Hudson and saw the Promised Land.

New Jersey offered a quick solution to companies that had been in the World Trade Center or in damaged nearby buildings. In rapid succession, firms like Morgan Stanley and American Express shifted jobs to towns like Jersey City, Parsippany and Short Hills. Some companies already had Jersey facilities. Others signed new leases, security fears driving them to disperse their operations.

To date, displaced downtown firms have shipped an estimated 16,500 jobs from Manhattan to New Jersey since Sept. 11, according to the real estate firm Tenantwise. More will follow.

Last month, Goldman Sachs announced plans to move its entire stock trading department to a new 2.4-million-square-foot complex in Jersey City. Insurance brokerage Marsh & McLennan just signed a lease in Hoboken, where it will move at least 1,200 jobs.

Companies want to disperse operations, but also are attracted by Jersey's lower rents and financial incentives widely considered better than New York City.

"When you take all those things and compare it to midtown, it's a much more attractive transaction," said Kenneth Rapp of CB Richard Ellis.

But the office market of northern and central New Jersey except for the Jersey City waterfront is languishing. Despite post-Sept. 11 demand, vacancy rates remain higher than in Manhattan, even downtown. The slowing economy, corporate layoffs and an excess of sublease space have taken an even heavier toll across the Hudson.

"The New Jersey market is weak," said David Shulman, a real estate analyst at Lehman Brothers.

"The demand has fallen off in the market," added Mitchell Hersh, chief executive of Mack-Cali Realty, one of the state's largest commercial developers. "It's mostly about job contraction and reduction."

New Jersey has a diverse supply of office buildings, from the gleaming new structures of Jersey City, to bygone-era buildings of downtown Newark, to suburban corporate campuses extending from Parsipanny to Princeton. With 137 million square feet of office space, northern and central New Jersey is the nation's ninth largest market, according to Grubb & Ellis. Manhattan, the largest, is nearly three times bigger, with about 380 million square feet.

Yet at the end of last year, Jersey had a vacancy rate of 17.52%, up from 12.23% a year earlier, according to Insignia/ESG. Vacancies increased last month, rising to 17.86%, the firm said. Downtown Manhattan, by contrast, has an availability rate of 13.4%. Overall, 11.2% of Manhattan's office space is currently available for leasing, according to Insignia/ESG.

Completed offices in the most desired waterfront areas of New Jersey are almost fully occupied, with just 4.5% available, according to Grubb & Ellis. Including projects under construction, the availability rate rises to 17.37%, according to Insignia/ESG, pointing to high vacancies soon.

Brokers and real estate executives point out that, despite a brief surge in demand after Sept. 11, companies reducing workforces need less space. As a result, a decision by Manhattan-based companies to move some or all of their operations across the river "didn't translate into an equal requirement for space in New Jersey," said Steve Jenco of Grubb & Ellis.

The result is that new leases signed in Jersey have been dwarfed by the amount of space dumped on the market for sublease. Knight Securities is trying to sublet 260,000 square feet at the Newport complex in Jersey City. Further inland in Somerset County, AT&T put its entire seven-building, 2.6 million-square-foot campus on the market.

Other hard-hit New Jersey companies, including Lucent, have also dumped space on the market. At Harborside in Jersey City, Charles Schwab is subletting all of Plaza X, which isn't even finished yet.

"We've almost tripled the amount of sublease space just in a one-year time period," Jenco said.

For that reason, New Jersey real estate executives say the state is well-positioned to absorb demand if more companies try to spread out operations.

As last year's report by Sen. Charles Schumer (D-N.Y.) pointed out, construction of new buildings in Brooklyn and Queens has lagged, making it hard for firms to move staff there.

As a result, brokers report continued interest on the other side of the Hudson.

"A number of major tenants from downtown and midtown are still looking at the waterfront," said Patrick Murphy of Insignia/ESG.

Original Publication Date: 02/08/02
2002 Daily News, L.P.
 

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