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A Breakout Year Propels New Jersey
Economy into 2005
A
t the end of 2003, we tiptoed out on the forecasting limb and asserted that if the 2004 national economy were a movie, it would be titled “Showtime.” We also opined that if the 2004 New Jersey economy were a movie, it would be titled “The Sweet Smell of Economic Success.” Amazingly, we actually nailed the forecast! It was a breakout economic year not only for New Jersey, but for the nation as well. The state had its best economic performance since 2000, the final year of the great trans-millennial economic expansion. So this will be a happy recap of the year gone by.
The Nation
The national economy positively shaped the 2004 New Jersey economy and it will continue to do so in
- A brief look back to see how we got here should prove useful in assessing the future. During the past four years, America went from a GO-GO economy to a SLOW-GO economy to a NO-GO economy—and then we finally moved to a strong RE-GO economy in 2004. In March 2001, the nation slipped into recession, marking the end of the GO-GO years, a record 120-month long expansion that started in March 1991. Employment growth totaled 24 million jobs during this 10-year long expansion, or 2.4 million jobs per year (200, per month). Please remember those figures—2. million jobs per year or 200,000 per month during the GO-GO years. They set benchmarks for what constitutes a very strong expansion and we’ll refer to them subsequently. In March 2001, the NO-GO years arrived. The formal recession lasted only eight (continued, p. 2)
Februar y 2005
Sitar–Rutgers
Regional Report
A quarterly report on employment and office markets in Northern and Central New Jersey
Published by the
Edward J. Bloustein
School of Planning
and Public Policy
and Sitar Company •
ONCOR International
Plenty of Space for Planned Projects
O
ffice development has been appropriately restrained over the past few years while we have endured higher than desirable vacancies. However, there are quite a number of large commercial projects, planned and approved, just waiting for market forces to turn around and the right tenant to materialize so that ground can be broken. Although these proposed sites may change considerably according to tenant demand or may never even materialize as office space, the potential additional space is indeed substantial. If all of these projects were built on spec to their proposed specifications, available Class “A” space would more than double. An examination of large (at least 500,000 square feet) planned commercial office buildings reveals that New Jersey has quite a few. Almost 30 million square feet has been proposed. Plans for Hudson County are quite ambitious with 40 percent of the new Class “A” space targeted for the county, nearly all of it in Jersey City. In fact, plans made for additional space in Jersey City are nearly double the (continued, p. 7)
By James W. Hughes and Joseph J. Seneca
James W. Hughes and Joseph J. Seneca, editors
Volume 8
Number 1
By Linda Tanaka
months and ended in November 2001. During this eight-month downturn, the nation lost 1.6 million jobs. Since the recession’s end in November 2001, there have been three straight years—12 straight quarters—of positive growth in economic output as measured by real Gross Domestic Product (GDP). Nonetheless, the nation lost an additional 1.1 million jobs over the 18 months between November 2001 and May 2003, the cyclical employment low. This was not simply job-less economic growth—a phrase originating in the early 1990s—it was job-loss economic growth. As a historical note, in the nine preceding U.S. post-war recessions starting in 1948, the average difference between the officially designated end of the recession and the cyclical employment low was a single month. This time it was dramatically different. Employment bottomed out a long 18 months after the recession officially ended, an event unprece- dented in modern economic annals. It began to feel as if we were in the pre-deceased stage of the economic life cycle. The final autopsy revealed that the nation lost 2. million jobs in the 26 months between March 2001 and May 2003. This just missed being the worst employment contraction since the Great Depression. And it created the fierce economic headwinds that New Jersey has had to surmount. America’s labor markets finally awoke during the second quarter of 2003. Between May 2003 and January 2005, despite some soft patches, the nation has regained more than 2.7 million jobs, finally surpassing its pre-recession employment peak. This represents the recovery of 102 percent of its recess- ionary employment losses. As we will subsequently discuss, this compares to a 174 percent job recovery rate for New Jersey through December 2004. Thus, 2004 was the best employment growth year in the United States since 1999. In 2004 (measured from December 2003 to December 2004), the nation added approximately 2.2 million jobs. The significance of this figure is three-fold. First, it surpassed the 1.9 million jobs gained in 2000, the last year of the past 120-month expansion. Second, it approached the annual average growth of that expansion—2.4 million jobs per year or 200,000 per month—figures that were emphasized earlier. Finally, as a point of reference, the nation needs to add between 125,000 and 150,000 jobs per month—or between 1.5 million and 1.8 million jobs per year— just to accommodate labor force growth and to keep the unemployment rate constant. That pace was far surpassed in 2004 when job gains averaged 181, per month. So the United States is firmly back in the job creation business. And for the record, George Bush was not (but only by a thread) the first president since Herbert Hoover to have a net loss of jobs during a term in office. Another surprising perspective on the post- recession period is that the current economic recovery—as gauged by rate of growth in GDP— actually surpassed the rate of growth in the comparable period following the 1990–1991 national recession. In the first three years of recovery following the end of this recession, GDP grew by about 3 percent per year. In the three years following the end of the 2001 recession, GDP grew by about 3.5 percent per year. Thus, the current recovery has the advantage in terms of growth in economic output, while the earlier period had the advantage in terms of job growth. In any case, 2004 was the best economic year in the United States since 1999. Final growth in GDP for 2004 came in at 4.4 percent, the exact same growth rate for 1999. So 2004 had the highest growth output in five years. Thus, we entered this year with substantial momentum. However, GDP growth may decelerate to the 3.5 percent range in
- Not to worry—a slowdown is not unusual at this stage of the business cycle, more than 3 years into an economic expansion. And the growth rate this year should still be higher than the long-term 2 Breakout, continued
Thus, the current
recovery has the
advantage in
terms of growth
in economic
output, while the
earlier period
had the
advantage in
terms of
job growth.
Stalled Commercial Market Will Recover Slowly County Bergen Essex Hudson Hunterdon Mercer Middlesex Monmouth Morris Passaic Somerset Union TOTAL Central NJ Northern NJ
By Linda Tanaka
W hile 2004 proved to be a year of robust economic growth in New Jersey, the commercial office market has yet to produce a similar rosy picture. Market conditions remain fixed within the historically high range of availability rates while rents have not declined significantly and demand for investment property remains strong. Despite availability rates taking a minor dip from the previous quarter, the year ended with a slightly higher rate of available space and slightly lower asking rents. Considerable amounts of space were added to the market, resulting in net absorption in significantly negative territory. The region ended the year with direct availability of 17.0 percent or nearly 45 million square feet, and total availability of 21.5 percent. A year ago, these numbers stood slightly lower at 16.1 percent and 22.1 percent, respectively. The average asking rent is down slightly from $25.31 to $24.99 over this same period. The year 2004 ended with annual net absorption of -1,062,863—quite a swing from the positive net absorption of 1,488,695 reported last December. Significant amounts of space were added to the market in this last quarter. This was the case in a number of counties and not attributed to a single market. Fourth quarter net absorption was -1,019,536. The availability of directly-offered Class “A” space in the region has increased somewhat during the past 12 months, while total Class “A” space has remained unchanged. 19.7 percent of Class “A” inventory is available directly and 26.6 percent is available in total, compared to 17.7 percent and 26.7 percent, respectively, a year ago. Asking rents have been Buildings 570 382 163 44 346 448 396 429 165 275 297 3, 1, 1, Average Asking Rent $25. $24. $25. $24. $25. $24. $22. $26. $23. $26. $21. $24. $24. $25. Total Inventory 29,930, 27,972, 24,873, 1,526, 16,445, 26,049, 14,473, 28,873, 7,055, 20,099, 11,118, 208,416, 88,185, 120,230, Available Space 6,060, 4,415, 5,312, 355, 2,328, 7,113, 1,752, 7,350, 1,251, 6,791, 2,142, 44,874, 20,128, 24,745, Available Space 4,566, 3,900, 2,783, 329, 1,908, 5,440, 1,595, 6,589, 1,200, 5,591, 1,587, 35,493, 16,123, 19,369, Vacancy Rate 15.3% 13.9% 11.2% 21.6% 11.6% 20.9% 11.0% 22.8% 17.0% 27.8% 14.3% 17.0% 18.3% 16.1% 4th Qtr. Net Absorption 53, 48, 60, 26, 167, (565,254) (12,012) (390,991) (67,280) 42, (383,100) (1,019,536) (750,322) (269,214) *Includes all office buildings, 10,000 square feet and greater. Does not include owner-occupied facilities.
Northern and Central New Jersey Total Office Market
Fourth Quarter 2004
Vacancy Rate 20.2% 15.8% 21.4% 23.3% 14.2% 27.3% 12.1% 25.5% 17.7% 33.8% 19.3% 21.5% 22.8% 20.6% Direct Total (Direct + Sublet) (^2004) YTD Net Absorption (144,301) 175, (350,069) (19,511) 152, (267,971) 214, (132,040) (161,909) (370,400) (158,824) (1,062,863) (430,459) (632,404)
The availability of
directly-offered
Class “A” space
in the region has
increased
somewhat during
the past 12
months, while
total Class “A”
space has
remained
unchanged.
5
While the
Piscataway/
South Plainfield
submarket has
been as slow as
any commercial
market in the
state, some
recent activity
may be a direct
result of the low
asking rents in
this area.
modestly affected, declining $.51 to an average of $27.16. Class “A” net absorption shows a wide swing over the past year. Ending 2003 comfortably in positive territory at 474,947 square feet, 2004 closed with net absorption of -43,877. The fourth quarter saw a large move towards net negative absorption, ending with 731,997 more square feet deposited on the market than was removed from it. Middlesex, Morris, and Somerset Counties continue to harbor large amounts of unused office space. Middlesex and Morris counties both show approximately one million additional square feet directly available than was offered last December. AT&T and Telecordia’s vacating of approximately 900,000 square feet in three buildings in Piscataway and the more than 500,000 square feet available at Southgate Corporate Center in Morris Township are contributing factors. PNC Financial Services’ signing for nearly 132,000 square feet at 2 Tower Center in East Brunswick will help Middlesex county’s vacancy rates when the company fills the space next year, as will Rutgers University’s occupation of 50,000 square feet at the Technology Centre in North Brunswick. While the Piscataway/South Plainfield submarket has been as slow as any commercial market in the state, some recent activity may be a direct result of the low asking rents in this area. Rocheux International recently signed a 15,000 square foot, ten-year lease in 200 Centennial Avenue, Piscataway, for the relocation of the company’s U.S. headquarters and several other companies are in the market for similar spaces. Experian’s move into the 25, square-foot space on Gatehall Drive, Parsippany, late in the month was certainly not enough to ease the area’s vacancy rates. However, several (continued, p.6) County Bergen Essex Hudson Hunterdon Mercer Middlesex Monmouth Morris Passaic Somerset Union TOTAL Central NJ Northern NJ Buildings 78 59 50 5 70 109 50 127 16 101 28 693 358 335 Average Asking Rent $28. $26. $29. $25. $29. $25. $27. $27. $24. $27. $28. $27. $26. $27. Total Inventory 12,812, 14,654, 19,557, 636, 7,097, 15,477, 5,741, 18,839, 2,041, 14,803, 3,695, 115,357, 46,815, 68,542, Available Space 3,061, 2,664, 4,478, 268, 1,040, 5,215, 780, 5,862, 512, 5,701, 1,048, 30,634, 13,787, 16,847, Available Space 1,987, 2,206, 1,984, 252, 718, 4,076, 741, 5,219, 485, 4,569, 501, 22,742, 10,606, 12,135, Vacancy Rate 15.5% 15.1% 10.1% 39.7% 10.1% 26.3 % 12.9% 27.7% 23.8% 30.9% 13.6% 19.7% 22.7% 17.7% 4th Qtr. Net Absorption 239, (108,148) 31, 28, 11, (584,961) 27, (400,268) (8,139) (910) 32, (731,997) (515,343) (216,654) *Includes all office buildings, 10,000 square feet and greater. Does not include owner-occupied facilities.
Northern and Central New Jersey Class “A” Office Market
Fourth Quarter 2004
Vacancy Rate 23.9% 18.2% 22.9% 42.1% 14.7% 33.7% 13.6% 31.1% 25.1% 38.5% 28.4% 26.6% 29.4% 24.6% Direct Total (Direct+ Sublet) (^2004) YTD Net Absorption 385, 97, 59, (32,789) 25, (416,039) 352, (109,712) 1, (360,977) (46,445) (43,877) (445,236) 401, Stalled, continued
Plenty, continued 7
These potential
buildings are
situated in the
most desirable
areas of the
state and it is
only a matter of
time before
conditions are
ripe for their
construction.
potential space of proposed plans in the county with the next greatest amount of proposed space, Morris County. For the most part, these projects were conceived in the height of the market but were wisely put aside when the market conditions turned sour. These potential buildings are situated in the most desirable areas of the state and it is only a matter of time before conditions are ripe for their construction. Once they come to fruition, it will be quite obvious that these projects were surely worth the wait.
Proposed New Jersey Class “A” Buildings, 500,000 Square Feet or Greater
LOCATION Hudson Jersey City Harrison Morris Mount Olive Whippany Monmouth Neptune Tinton Falls Mercer Trenton Princeton East Windsor Bergen Rutherford Ridgefield Park Middlesex Old Bridge Hunterdon Readington Total 11,543, 9,043, 2,500, 5,550, 4,800, 750, 4,376, 3,576, 800, 3,320, 1,520, 1,200, 600, 1,797, 1,000, 797, 1,600, 1,600, 656, 656, 28,843, NUMBER OF PROPOSED BUILDINGS 9 8 1 4 3 1 2 1 1 3 1 1 1 3 2 1 1 1 1 1 23
PROPOSED
SQUARE FEET
Sitar Company • ONCOR International
1481 Oak Tree Road
Iselin, NJ 08830
www.sitarcompany.com
Edward J. Bloustein School of Planning and Public Policy
Rutgers, The State University of New Jersey
33 Livingston Avenue, Suite 300
New Brunswick, New Jersey 08901 - 1981
www.policy.rutgers.edu
Sitar-Rutgers Regional Report is published by the Edward J. Bloustein School of Planning and Public Policy and Sitar Company • ONCOR International. William Sitar, President, Sitar Company • ONCOR International Linda Tanaka, Director of Research, Sitar Company • ONCOR International James W. Hughes, Dean, Edward J. Bloustein School of Planning and Public Policy Joseph J. Seneca, University Professor, Rutgers, The State University of New Jersey Production: Deborah Vogel and Will Irving 8 Breakout, continued rate of job growth eclipsed or matched that of the nation. Private service-providing employment expanded by 55,100 jobs, with three supersectors increasing by more than 10,000 jobs, led by education and health services (15,200 jobs), leisure and hospitality (12, jobs), and professional and business services (10, jobs). Employment growth in financial activities fell just short of 10,000 jobs (9,600 jobs), but its rate of increase (3.4 percent) was nearly double that of total employment (1.9 percent). Moreover, this performance is even more impressive given the fact that employment in financial activities in New York City did not grow at all in 2004. Employment in trade, transportation, and utilities grew by only 4,900 jobs, a performance inhibited by job losses in the transportation subsector (due to continuing financial difficulties of airlines) and the utilities subsector. Only one private service-providing supersector suffered an overall employment loss— information, which lost 700 jobs. Overall, goods-producing employment had a net positive increase. Construction gained 8,200 jobs, a rate of increase of 5.2 percent! Construction employment is now close to the record level reached during the late 1980s real estate bubble. Unfortunately, manufacturing continued to hemorrhage jobs (-4,600 jobs), but at a much reduced pace compared to previous years of the decade. Government, and in particular, local and state government, was also a growth locomotive in 2004. In fact, it grew faster than total employment (2. percent versus 1.9 percent) and its absolute increase (17,100 jobs) was larger than any private super sector. This is one result of statewide deficit spending and is one of the contributing causes to the endemic property tax problem in New Jersey. So with the best year since the start of the new century now behind us, New Jersey enters 2005 with excellent economic momentum. While the U.S. outlook is for slowing growth, there is every reason to expect that New Jersey’s economy will still have another good year in 2005. For this to occur, the national will have to avoid large energy price spikes, any sudden collapse of the dollar, and a sharp rise in interest rates. Concurrently, the state will have to solve the fiscal and political labyrinth of a large structural budget deficit in a manner that does not damage incentives for individuals and businesses to locate and invest in New Jersey.
