Slowdown shrinks firms' expansion plans
Journal staff writer
Friday, October 11, 2002
The amount of vacant office space along the Hudson County waterfront is
at a seven-year high, as the plunging stock market, widespread layoffs and a
gloomy outlook for the financial services industry has prompted many
companies to abandon expansion plans hatched during the high-flying years of
the late 1990s.
According to reports released yesterday by commercial real estate firm
Cushman & Wakefield, the office vacancy rate on the waterfront - including
Jersey City, Hoboken and Weehawken - reached 10.9 percent in the third
quarter of this year, the highest since 1995.
While the area remains among the top markets in the region - commercial
centers in Central Jersey reported vacancy rates of up to 20 percent - many
companies that signed long-term leases in Hudson County over the past
several years are now scrambling to sublease huge chunks of that space.
"I don't think anybody expected the depths of the recession we have," said
Edwin Cohen, executive director of Cushman & Wakefield, and the author of
Cohen said the surge of construction in Hudson County, particularly in the
Newport and Exchange Place neighborhoods in Jersey City, produced a lot of
new office space and resulted in long-term commitments by companies that now
find themselves downsizing rather than expanding.
"If anybody had a crystal ball, you wouldn't have had the amount of
construction you had," Cohen said.
One example is San Francisco-based trading firm Charles Schwab & Co., which
recently announced a round of layoffs and is now shopping 340,000 square
feet of office space it leased in 2000 at Harborside Plaza 10, an office
tower owned by Mack-Cali Reality a few blocks north of Exchange Place.
In Newport, PaineWebber has a lease on a 1.1 million-square-foot building
under construction; the company is now looking to sublet about 500,000
The financial district in Jersey City grew at a torrid pace during the
latter half of the 1990s and is now competitive with Downtown Manhattan in
terms of the rents being charged for Class A office space.
But whereas only a few years ago offices were leased out to the highest
bidder and the vacancy rate stood just above zero, the sluggish market has
caught up with what industry officials have dubbed Wall Street West.
"There's very little demand, which is exacerbating the vacancies," said
M. Myers Mermel, CEO of tenantwise.com, a commercial real estate
company based in Manhattan.
Mermel said many companies are stuck with empty space that they
haven't even put on the market and have decided to simply hold onto in
anticipation of the next upswing in the market.
But with virtually all economic indicators pointing in the negative
direction, Mermel said commercial real estate may be far from its lowest
"Real estate absorption is a lagging factor of economic indices," he said.
Following the attacks on the World Trade Center, many companies moved
operations across the Hudson River.
Much of that business has since gone back to Manhattan, although former
Trade Center tenant Marsh and McLennan signed the largest deal of the year
in Hudson County when it leased 420,000 square feet at the Waterfront
Corporate Center in Hoboken.
Goldman Sachs, on the other hand, which is building the state's tallest
skyscraper in Jersey City, will only move half the 4,000 employees it once
planned to bring into Jersey City.
And JP Morgan Chase, which now occupies two new buildings in Newport, has
announced a round of layoffs but hasn't yet said whether its Jersey City
operations will be affected.
Cohen said that as long as the market spirals downward, it is unlikely that
companies will be looking to add more office space, in Hudson or anywhere
"Until you see companies start hiring instead of laying off people, you're
going to have a lot of vacant office space," he said.
Copyright 2002 The Jersey Journal.