South Jersey Flexes Muscle

South Jersey hasn't had this much commercial and residential momentum in years, and there's no indication that the market's slowing down, according to the speakers at our fourth annual Future of South Jersey at the Westin Mt. Laurel. The region's got a locational advantage, but it's also got strong economic development incentives on its side.

Snapped: Brandywine Realty Trust EVP George Sowa. First our speakers turned to the health of the office market, concluding that the market's been on fire in the last 12 months or so. In 2010, vacancies peaked at about 17%, and in places like Cherry Hill, as much as about 30%, and there was a lot of sublease space on the market. Tenants wanted short leases, and to downsize. Now the market's made a 180-degree turn. There's about 12% vacancy overall, effective rents are going up, concessions have burned off and TI packages are coming down. Tenants aren't just renewing, they're expanding.

NJ EDA director Paul Ceppi. The NJ Economic Opportunity Act is doing what it was designed to do—attracting and keeping companies in New Jersey, our speakers asserted. The act has been a boon for places like Camden and the surrounding area, where only a few years ago, the sky seemed to be falling. For example, just last December, the state awarded $118M in tax incentives for Subaru of America to relocate and build facilities there, and an additional $40M for Cooper Health System to relocate its operations in Camden.

Here's Somerset Properties VP Jeff Arnold. But our panelists stressed that the EOA and other state incentives aren't giveaways. "No one's cutting Subaru a check for millions," one speaker noted. The state conducts a thorough cost-benefit analysis, and it has to come out ahead for the state. Companies that receive the incentives have to earn them in terms of development and job creation, and their payout generally comes in the form of tax credits.

Here's Whitesell VP James Whitesell. The prospects for office development are good in some parts of South Jersey, including the more urban areas near Philadelphia, the speakers said. But suburban office, especially spec development, doesn't usually pencil out any more. Even build-to-suit opportunities aren't as strong as they used to be the further you go from built-up, walkable areas.

Conifer Realty VP Sam Leone. The fundamentals are reasonably good even in the suburbs, but even so companies and their workers want to be in more urban areas. That's the way Millennials are rolling for now. So it's better to repurpose suburban sites into retail or hotel or other alternative uses. Mixed-use development can flourish in further suburbs provided it helps create a more urban, walkable experience.

Dilworth Paxson partner Michael Fekete, who moderated. There's a similar dynamic at work in the South Jersey multifamily market, the speakers explained. Demand is still strong, and in a lot of places, properties are filling as quickly as developers can build them. Demand in Camden, for instance, is very strong. Again, built-up areas have the advantage, especially near transit corridors, because they offer the opportunity to live close to jobs and shopping and other amenities.