Office: Storm Clouds Continue to Gather

Halfway into 2008, and storm clouds generated by the current economic conditions continue to overshadow the Northern and Central New Jersey office market. Employment growth, a key pillar to support future expansion within the office market, has remained elusive.

During the first five months of 2008, New Jersey has shed nearly 11,000 jobs, which boosted the state’s unemployment rate to 5.4 percent. Hesitant about the challenging economic climate, many business sectors remained reluctant to make significant capital and labor investments, which has translated into a diminished appetite for additional real estate holdings. Any uptick in demand for office product has often been countered by consolidations. The net result of this struggle has been an office availability rate ranging just below 20 percent since early 2007. By mid-2008, the overall availability rate, which includes direct and sublet space, was approximately 19.8 percent.

Meanwhile, the supply of available sublease space in the Northern and Central New Jersey office market ticked higher in 2008, as companies shuffled their real estate holdings to reduce operating expenses. A rising tide of sublease space is often one of the most distinct indicators of a transitional office market. More than 7.4 million sf was available for sublease in mid-2008 compared to 6.5 million sf available one year ago. Sublease space accounted for nearly 25 percent of the total available space in the Northern and Central New Jersey office market in mid-2008.