Office markets show signs of bottoming out, industry insiders say

Easing of pressure on office rents cited as indication of improving demand.New Jersey’s commercial real estate markets are displaying signs of being at or near bottom, industry experts believe, based on activity in the first quarter, especially the past four to six weeks.

Jeff Schotz, executive managing officer of real estate services company FirstService Williams (formerly GVA Williams) in Parsippany said he’s beginning to see “the first signs of a turning of the market.” Inquiries are flowing in at an increasing pace from big and small prospective tenants, he said. The 40 largest office space deals currently being negotiated represent about 5 million square feet of activity, he added.

Among the big deals in the works is a requirement for 500,000 square feet from the Depository Trust & Clearing Corp. in Lower Manhattan, which is considering relocating some operations to New Jersey, according to Schotz.

“We’re either at the bottom or close to hitting bottom,” said Gil Medina, executive managing director of Cushman & Wakefield of New Jersey in East Rutherford, the real estate services firm representing Depository Trust. He attributed the improved sentiment to consumer spending coming back, the stock market showing signs of bottoming out and prospects of brighter earnings reports starting this week.

Medina said he also notices – anecdotally – an easing of pressure on rents for office space, an indication of improving demand for space. Schotz listed some of the other hunters in the state’s office space markets: UPS is looking for 150,000 square feet; energy firm Covanta is looking for 100,000 square feet, and an unnamed aviation insurance company has a requirement for 60,000 square feet.

“There has been a noticeable uptick in activity over the past 30 to 45 days,” according to a first quarter trends report FirstService Williams put out yesterday. The statewide vacancy for office space was 21.44 percent at the end of the first quarter, up marginally from 21.24 percent in the previous quarter, and landlords’ rent expectations were down six cents between the two quarters to $24.46 a square foot (annually), the report said. But it did find sublease space declining from 22.95 in first quarter 2008 to 20.39 this quarter – a sign of reduced pressure on vacancies.

“Credit is also playing an important role in this market,” said Matt Dolly, FirstService Williams’ managing director, research and marketing. “Not only are landlords more wiling to negotiate with strong-credit tenants, but tenants, probably more so than ever, are looking at the credit-strength of the landlords.”