Slow and steady job growth fuels the region
After suffering from a post-Sept. 11 slump like the rest of the nation, the northeastern United States slowly is inching toward economic recuperation. The outlook is optimistic despite the slow pace of growth: In September 2003, 5.8 percent of the Northeast's labor force was unemployed; by September 2004, unemployment fell to 5.1 percent, according to the U.S. Department of Labor.
These modest job gains have reinvigorated corporate confidence, leading to renewed office lease deals in Stamford , Conn. , and Manhattan , reports CB Richard Ellis and Grubb & Ellis. But in Boston and other parts of the Northeast, office markets struggled with high vacancy rates through year-end 2004.
High-priced single-family homes continued to feed the demand for multifamily housing in parts of the Northeast including Philadelphia and New Jersey . Strong fundamentals and rising rents indicate the market will continue to grow, reports Marcus & Millichap.
Boston 's industrial market, which suffered from negative absorption most of last year, improved mildly in third-quarter 2004 with 100,627 square feet of positive absorption, reports Grubb & Ellis. In Pittsburgh , the industrial vacancy rate fell to 13.7 percent due to renewed activity in eastern submarkets after standing at 15.6 percent for two years, according to Grubb & Ellis. The region's proximity to distribution channels indicates that industrial activity will increase this year.
In nearly every major northeastern city, retail markets showed considerable activity through mid-year 2004, according to Grubb & Ellis. New developments include Target and Home Depot moving into urban areas such as Manhattan and northern New Jersey.
Despite the overall high regional unemployment and vacancy rates in 2004, gradual property market improvements and job gains have kept the outlook positive for the year ahead.
Crazy for Condominiums
Developers near and far are snapping up historic properties in Cambridge , Mass. , for condominium conversion. Miami-based Crescent Heights bought the Museum Towers apartment complex in East Cambridge for $145.7 million, and Hamilton Co., based in Boston , bought Whitney on Main Apartments in Watertown for $56 million. Converting older infill properties overcomes the city's lack of space but still provides plenty of investment potential as finished products go for high prices, according to Meredith & Grew.
In October 2004, Boston-based Leggat McCall Properties in a joint venture with Ing Real Estate Development acquired eight buildings on a full-city block in East Cambridge for slightly more than $14 million. The former Necco candy factory will be converted to One First Street condominiums.
As one of Boston 's fastest-growing submarkets, East Cambridge 's condominium prices are 50 percent higher than a year ago. The area not only exhibits multifamily growth, but also shows evidence of retail and office markets slowly building steam. Leggat McCall's property will feature 8,000 sf of retail space in addition to more than 500 condominiums. Construction began in November 2004 and is slated for completion in March 2006.
Positive Industrial Outlook
• The Philadelphia metropolitan industrial market, consisting of 21 counties in Pennsylvania , New Jersey , and Delaware , includes more than 393 million sf of industrial properties larger than 100,000 sf.
• Philadelphia metropolitan statistical area's average industrial asking lease rates and vacancy rates remained constant through 2004 — $3.99 per square foot NNN and 9.8 percent, respectively — due to slow leasing activity.
• New industrial construction during third-quarter 2004 included build-to-suits for DHL/Airborne in Philadelphia (215,000 sf), Cardinal Health in Gloucester County (250,000 sf), and Kensey Nash in Chester County (162,000 sf). New construction is increasing overall.
New Retail Replaces Former Industrial Lot in the Bronx
A joint retail venture between Kingsbridge Associates, a private development consortium, and the Target Corp. located on a 9.5-acre lot straddling the Bronx and the Marble Hill section of Manhattan promises to be one of the most significant retail developments the area has seen in a decade. The 235,000-sf River Plaza Shopping Center is anchored by a 130,000-sf Target and tenanted by national retailers such as Marshall 's, Lane Bryant, Lazarus, Kid's World, Applebee's, and Washington Mutual. The $90 million development's annual rents are about $50 psf.
River Plaza is expected to improve the borough's retail market and serve as an example of the potential for redeveloping former urban industrial sites.
Office Market Activity
• New Jersey 's tallest building is complete. The 42-story, 1.36 million-sf Goldman Sachs tower helped northern New Jersey absorb 400,000 sf of office space.
• During the second half of 2004, several northern New Jersey trophy properties, including 17 office buildings acquired by the Gale Co. and SL Green/Wachovia Securities, changed hands.
• Citigroup leased 715,000 sf in the Warren Corporate Center , the state's largest lease transaction through third-quarter 2004.
• A decline in sublease space continues, but subleasing still accounts for 24 percent of the total available product.
Source: Cushman & Wakefield
Former Mill Reinvented
One of Connecticut 's largest redevelopment plans is underway in Georgetown . More than 300,000 sf of mixed-use commercial space including a hotel, recreation center, and retail; 416 residential units; a performing arts center; and possibly a train station along the Metro North New Haven Line, will occupy the former Gilbert & Bennett Wire Mill site.
The decision to turn the approximately 55 acres into a multiuse property was made after the Georgetown Land Development Co. convened with local, state, and federal stakeholders. The first phase of the $300 million project will be 48 live/work loft spaces in the rehabilitated weaving building and the redevelopment of a 35,000-sf building for the U.S. Forest Service.
The second phase of development includes residential units, a large parking structure, and mixed-use space. The region and state will benefit economically from “new employment, new retail and industrial sales, and … quality of life benefits resulting from an increased attractiveness of the region,” according to a University of Connecticut report.
Top Dollar Retail
Manhattan 's Fifth Avenue topped Cushman & Wakefield's list of the highest retail rents in the world, solidifying its place as the globe's toniest shopping district. Rents in Fifth Avenue 's approximately 55 stores increased 12 percent to $950 psf on average during the past year. Paris ' Champs-Elysées came in second with $710 psf.
The Northeast's hospitality sector is poised to make a comeback, according to Marcus & Millichap. Major markets New York , Boston , and Philadelphia have shown steady improvement in the last two years, which is expected to continue through this year.
CCIM Market Snapshot
"The industrial market is good here in New Jersey. Vacancy is being reduced and rents have gone up and stabilized. There is a strong demand for truck and trailer parking throughout the state. Lease rates vary from $5 psf in the middle of [the state] and $6 psf to $6.50 psf and up in northern New Jersey . The largest deal on a square-footage basis was in mid-Jersey nearing 1 million sf. As a firm we did a number of 150,000-sf to 200,000-sf deals."
—Kenneth F. Crimmins, CCIM, SIOR, president and CEO of Blau & Berg Co., Springfield , N.J.