About time back my friends in residential real estate were applauding the new uptick in housing sales activity. Prices were trending up and they were out there once again showing properties at a brisk pace. All that came to an abrupt end the day FED Chairman Bernanke signaled that he will look to slow quantitative easing at some point, possibly later this year. That is when all hell broke loose and interest rates jumped more than 100 basis points (1%) in a matter of days. Normally such a rise would not raise many eyebrows, but when interest rates are near 3 percent, such a rise is like raising interest rates by 25 percent. The reaction is that housing sales and mortgage applications have shut down like someone turning off a spicket.
Okay, so that’s the housing market! How will all that shake out in commercial real estate? We have been reporting to you that the New Jersey office markets have become very spotted. Some areas like Bergen Count have almost 90 percent occupancy, while areas in Central New Jersey like Parsippany have vacancy rates approaching 40 percent. We have also indicated that Class “A” market are showing weakness and Class “B” markets are showing strength, an new phenomenon for this long time real estate observer.
What is clear is that as the Government remains more and more dysfunctional, businesses are looking to get ahead of the next crisis. They are dumping full time workers to get ahead of Obamacare mandates. They are starting to make major moves in anticipation of the status quo remaining weak, for the foreseeable future.
Here in New Jersey Realogy has vacated their 450,000 square foot headquarters in Parsippany in favor of a new one in Madison of about 270,000 square feet. Amazon is about to move into a new warehouse in Robbinsville.
In short, if you look closely, there are companies that are quietly making decisions to take advantage of opportunities by committing to maintain a presence in the Garden State, albeit a smaller one. What will become of companies like Merck that have announced they are leaving their White House NJ Headquarters? Sanofi Aventis has been quietly slipping out the back door for the last few years. I really don’t hear much of roar from the Politicians about all this in either party. The subject just seems to be toxic.
The good news is that the odd blend of weak business prospects and spotted growth has been with us for quite a few years now and most companies have become used to their fate. Because of this, we at Dickstein Real Estate Services find ourselves very busy right now. We are working with a whole range of small and medium sized companies that are finally taking to plunge to lower their overhead through long range planning, much the way the large companies have been able to.
A logical way to take advantage of the opportunities in this market is to take the plunge to longer term thinking. The advantages of a five year lease are significant when compared to the price of short term year-to-year thinking. By taking advantage of longer amortization, tenants are able to lower their monthly costs and improve their environment. The flight to quality is once again in vogue.
Is this strategy right for you company? Spend some time with you real estate advisor, and you might be surprised. We welcome your inquiries and we welcome you to Dickstein Real Estate Services.
Categorised in: Real Estate Markets