Last week I had the honor of moderating a super panel at the MidAtlantic Real Estate Journal and the Businesses Committed to Southern New Jersey Annual SNJ Commercial Real Estate Forecast in Mt. Laurel. The panel consisted of Joseph J. Aristone, EVP and Chief Revenue Officer of PREIT, David J. Fleming, Director of Engineering at Marathon, Dan McGovern, SVP at CBRE, Shimon Kanter, Principal at SMK Storage and Kirk Miller, Sr. Director at Cushman Wakefield.
The key takeaways from the wide-ranging conversation included:
- Retail – there has been a flight to quality in the last 3 years; COVID sped up the disruption already occurring with at home purchasing habits but became a facilitator as well as it culled out some of the less well capitalized companies. Much of the strip retail continues to be held by private owners while the larger malls tend to be owned by the public companies. Rents in quality malls continue to be around $90-100 psf with rents in most Class A strip centers in SNJ being around $20 – $20 psf. Tenants are asking for better and more reserved parking closer to stores as amenities.
- Office – despite what you hear on the news and in the papers, office is far from dead; there has been a flight to well capitalized owners and the last 2-3 years have represented a super time to buy assets if you have some stones and equity capital. Office in SNJ which was dominated by the REITs during the early 2000s, is now predominantly owned by private owners. Rental rates for A product range from $21 psf to $25 plus electric in particular markets and have not moved much in the last 15-20 years, creating a squeeze on returns as costs to operate continue to increase. Vacancy has continued to reduce from 23% to approximately 15% in early 2025, a good sign. Tenant Improvement dollars continue around $25 psf for a 5-year deal and $40-50 for a ten-year deal with good credit. Tenants are asking for fitness centers, return of lobby cafes, walking trails and good property managers.
- Self-Storage – COVID created a bump in a marketplace already doing fabulously well and drove occupancy to the mid 90% with rents in the $1.50 psf range – unheard of previously. Currently there is a bit of backlash in suburban communities at the moment with occupancy trending down into the 80s and rents around $1.05 psf. Many projects have been done in SNJ by private owners while the REITs continue to make inroads in NJ. 1,200 buildings in NJ were built in 2023, a record for this product type; Expected deliveries in 2025 are down to a more manageable 300 buildings while suburban towns begin to push back on more deliveries. Tenants are looking for excellent lighting and safety.
- Industrial – it has been on an amazing 20+ year ride; however, the marketplace has been very volatile over the last 3 years; COVID created an occupancy bump and an increase in pricing for owners; this marketplace has moderated a bit in the last year plus with occupancy down a few hundred basis points but still in the low 90s. Most of SNJ product is now institutionally held by public companies and institutional owners. 2025 looks like a year to be a tenant with tenant improvement allowances of approximately $8 psf depending on credit but this is likely to be short lived as interest rates decline. Tenants continue to look for the 3 P’s – power, PILOTs (i.e., reduced taxes) and Public Utility availability.
- Construction – again, despite what you have been reading, there has been a lot of construction over the last 3-4 years with many having plans finalized and permits finalized to take advantage of hoped for reduction in interest rates later this year.
- Data Centers – continued growth in Southern NJ but access to redundant sources of power are slowing growth in this sector in NJ.
On the sustainability front, despite what the de-emphasis federally with the new Administration, all of our panelists agreed that their companies and their tenants all value efficiency and sustainable attributes of buildings, in particular when there is a return on investment for the installation – e.g., lighting, HVAC, building cladding that leads to less consumption of energy and therefore less cost to the tenant at the property.
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