Commercial Real Estate on the Upswing

Sales in North Jersey at highest levels since 2006

Sales last year in North Jersey of commercial property, including industrial, office, multifamily and retail, reached the highest levels since 2006, according to recent reports. Overall sales jumped 37 percent from 2013 for a total of $5.7 billion.

The report covered statistics based on sales throughout six counties in Northern New Jersey: Bergen, Essex, Hudson, Middlesex, Passaic and Union. Experts in the field weighed in on the findings and offered their thoughts on whether or not the positive trend would continue.

Q: To what do you attribute the growth in overall sales?

A: Current conditions—tax rates, prices, yields on sales—have created the perfect storm for sellers of real estate. Prices are high right now because the socioeconomic conditions are fabulous. What’s also fueling the market right now is the 1031 exchange [which allows parties that sell certain types of property to reinvest tax deferred].–Jaime Weiss, principal, Weiss Realty Co., Moonachie

A: Now that the economy has started to show signs of improvement, companies feel more confident that it’s time to make that purchase. The current very low interest rates certainly fuel this optimism. The low rates create an environment in which the only two viable places to put money today are the stock market and real estate, and quality real estate over time has proven to be a very good investment.

–Steven G. Leitner, vice president of NAI James E. Hanson in Hackensack.

A: I attribute this to low interest rates & REO.  I recently heard at a seminar that there are over 25,000 commercial loans coming due over the next three years. Many of these loans are under-performing, which will require a workout or the assets will go through a receivership process.  This will continue to add to the steady flow of sales in the market touching all asset classes.– Frank Recine, executive managing director, Newmark Grubb Knight Frank, Rutherford

Q: Which sector has seen the most growth?

A: Multifamily properties have been at the top of the list for investment. The reasons are that the stagnant economy has caused many people to leave their homes for rental housing, and the younger generation, which has historically purchased homes, has decided that renting is more economically feasible and gives them more flexibility in life style choices. The challenge here is that, with so many multifamily units being built and office buildings being converted to apartments, an oversupply of this property class has started to increase vacancies, with the anticipated result of a softening of rents and an eventual decline in property values. —Steven G. Leitner, vice president of NAI James E. Hanson, Hackensack

A: At this point in time, multifamily has seen the most growth. This is due to several factors:  accessible financing in this asset class, newer industrial product; due to the rising trend in the e-commence markets and stable “Class A” office product in primary markets; and due to institutional buyers seeking stable returns.  Entrepreneurial developers are purchasing Value-add product at competitive pricing and re-positioning assets to create value.– Frank Recine, executive managing director, Newmark Grubb Knight Frank, Rutherford

Q: What is the current climate for other properties?

A: The office market has been the main challenge. Companies, because of poor economic conditions and internet technology increasing productivity, have found that they can maintain their business with fewer employees.  Fewer employees equates to less office space required. The result is major office landlords have sold many of their buildings or converted them to multifamily.  The one bright spot is that investors, expecting the economy to improve, have been purchasing Class A office properties in the country’s major cities. —Frank Recine, executive managing director, Newmark Grubb Knight Frank, Rutherford

A: Properties like Starbucks, CVS, Walgreens are in demand. For example, there was a property in Union City that sold in 24 minutes. The location was great but there was no drive-thru. But it had parking which is hard to come by, especially in a populated area like Union City. The seller got a high price, the buyer got a great mortgage at a low interest rate. Everyone was happy.–Jaime Weiss, principal, Weiss Realty Co., Moonachie

A: Increased internet sales have forced many retailers to close or downsize their brick and mortar stores, and improve their internet technology to capture more internet sales. The labor participation rate and wages will have to increase to see an improvement in retail sales and a resulting increase in new retail development.  To this point, the Boulder Group reports that the main focus of retail store openings in 2014 was the dollar stores which accounted for 45 percent of the 1,000 new store openings in the United States. —Steven G. Leitner, vice president of NAI James E. Hanson, Hackensack

Q: What is the forecast?

A: The industrial market has survived the recession with vacancies reduced and rental and sales prices increasing. The anticipated expansion of the Panama Canal to be completed in 2016, which will enable large cargo ships to access East Coast ports, has encouraged developers to erect large box, high ceiling buildings all along the East Coast, and in New Jersey, close to Ports Newark and Elizabeth. With internet sales increasing and the resulting importance of same day delivery, medium and large sized buildings are being built and purchased to satisfy the growth of the E-commerce industry. The result of this increased demand for industrial buildings is a significant reduction in the inventory of quality buildings available for purchase.  —Steven G. Leitner, vice president of NAI James E. Hanson, Hackensack

A: Right now the trend is leaning towards industrial properties. The prices are right and there is a distinct change of demographics for logistics. The “inland port” concept is very attractive. Companies are buying and selling properties inland where they will transport goods that come into the ports. —Jaime Weiss, principal, Weiss Realty Co., Moonachie

Q: Do you see a positive trend continuing in commercial real estate sales?

A: Will it last? Hard to say if this trend will continue or if we’ve hit the bubble. If the Fed decides to raise the interest rate, the prices will go down and we’ll see less activity. In four or five years when the interest rates are reset, we’ll probably see another shift.– Jaime Weiss, principal, Weiss Realty Co., Moonachie

A: I feel it will last another three to five years. I do not think we are anywhere near a high in the commercial real estate market.  I think we are working our way out of a tangled web and the sophisticated players are creating value out of hard work, re-positioning and the miscalculations of previous developers/owners.–Frank Recine, executive managing director, Newmark Grubb Knight Frank, Rutherford

Q: What factors can result in a turnaround in the commercial real estate market? 

A:  The quickest way for the floor to drop is with a rise in interest rates. —Frank Recine, executive managing director, Newmark Grubb Knight Frank, Rutherford

A: The announcement in recent weeks by the Federal Reserve that they do not see a reason to raise interest rates through the first half of this year should certainly have a favorable impact on real estate investments, at least for the balance of the year and probably into 2016. —Steven G. Leitner, vice president of NAI James E. Hanson, Hackensack

 

By the numbers

Commercial real estate sales: $5.7 billion, up 37 percent from 2013

Number of transactions: 1,630, up 77 percent

Top locations for total sales:

Bergen County totals sales:  $512.6 million

Hudson County total sales:  $410.9 million

Market stats:

Multifamily sales:  $1.4 billion, up 22 percent

Industrial sales:  $1.5 billion, down 13 percent (second-highest yearly total since 2007)

Office space:  $1.3 billion, up 142 percent (Bergen and Hudson county properties saw largest growth)

Retail market:  $620 million (little change from 2013)

Angela Daidone is a freelance writer, editor and public relations specialist. She can be reached at adaidone@aol.com.

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Meadowlands USA

Meadowlands USA

Meadowlands USA is a North Jersey regional publication that reaches people who live and work in and around the Meadowlands (including the Bergen, Hudson, Essex and Passaic County corridor), as well as visitors to our region. The blog edition is updated regularly and the print edition is released six times a year.

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