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Waterfront Office Vacancies at 7-year High

Slowdown shrinks firms' expansion plans

By Jason Fink
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 the report.

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 square feet.

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 ebb.

"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 else.

"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.

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