Franklin D. Roosevelt once said owning real estate is the safest investment in the world.
New Jersey commercial real estate owners would like a word.
While the Legislature undoubtedly made some key improvements this week from an initial realty transfer tax increase proposed by Gov. Phil Murphy in his FY26 budget, New Jersey’s challenged commercial real estate market is likely to still feel the sting from the compromise.
“We're basically adding additional surcharges on a product that is stagnant or dying,” NAIOP NJ Government Affairs Consultant Anthony Pizzutillo told the Senate Budget Committee on Thursday. “And I just don't see the public policy value on that.”
Gov. Murphy’s initial proposal called for doubling the realty transfer fee on home and most commercial building purchases between $1 million and $2 million from 1% to 2% (raising the minimum payment from $10,000 to $20,000) and tripling the rate to 3% for property sales over $2 million (increasing the minimum payment from $20,000 to $60,000).
But prior to the vote of bill S-4666 (Wimberly, D-35) during Thursday’s Senate Budget Committee, Senate Chair Paul Sarlo said that – thanks to extended negotiations with real estate and business advocates and the governor’s office – the additional fees would only apply to transfers of property for over $2 million.
Specifically, the increased fee breakdown will be:
- 2% for transfers of $2 million to $2.49 million
- 2.5% for transfers of $2.5 million and $2.99 million
- 3% for transfers of $3 million and $3.49 million
- 3.5% for transfers of more than $3.5 million
The bill also amends current law to provide that the seller, rather than the buyer, is responsible for the payment of the additional fee and controlling interest transfer tax.
The problem for the commercial real estate market, however, is each threshold is typically more easily reached than a residential property.
And that same commercial building real estate market already has to deal with office vacancies that never recovered from the COVID pandemic, rising energy costs and interest rates and other economic uncertainties coming out of Washington, D.C.
In New Jersey, those challenges may be amplified even more if the state Department of Environmental Protection’s Land Use rules are finalized next month as initially proposed.
“This is further chilling our commercial real estate market, which is already chilled,” said NJBIA Chief Government Affairs Officer Christopher Emigholz.
“We know office space is not something that's moving right now. We have ideas and and there are things that the Legislature is doing to stimulate that market, but this is going in the opposite direction.”
OFFICE SPACE BLUES
Q1 of 2025 showed New Jersey office space, in particular, facing some noteworthy headwinds.
A report by CBRE tracked 192,000 square feet of negative absorption, or a decrease in overall occupied space during Q1, pushing availability up by 20 basis points to 24.5%.
Another report by Savills found that the rate increased to 25.9%, citing the impact of 674,000 square feet hitting market at Sanofi’s soon-to-be-former Bridgewater campus. Merrill Lynch is vacating another 329,000 square feet of space in Jersey City.
Leasing activity during the first quarter fell to 1.1 million square feet, according to CBRE, down 26% from the prior quarter and 9% below the five-year average.
Pizzutillo called the increased realty transfer tax “pouring it on a super depressed asset class,” relating to the commercial real estate market.
HIT ON SMALL BUSINESS
Eric Blomgren, executive director of the New Jersey Gasoline Convenience Automotive Association, reminded the committee that the impacts won’t be just felt by large office buildings.
“We're concerned about our multisite operators who buy and sell these properties,” Blomgren said. “But we're also concerned about the small business owner who doesn't engage that much in real estate, but who builds up the one location and then sells it as the cornerstone of their retirement package.
“Now they're looking at $25,000 to $50,000 in additional taxes. Appreciate that it could have been higher. But we're still talking about doubling and tripling that tax over what it is now.”
For his part, Sarlo understood the concerns of the business community. But he also saw positives within the compromise.
“As the budget chairman, when you spend the last three, four months in negotiations and trying to balance a budget and meet a lot of the pressing needs of the state… there's a lot of give and take,” Sarlo said.
“If I had my druthers, this is one (tax increase) that I wish didn't have to be included. But I'm also fully understanding the need to balance a budget, provide necessary revenue to continue to work down our structural deficit, to provide a healthy surplus, the largest surplus in the history of the state, to the next administration incoming.
“I cannot thank the folks in the realtor community enough. I spent countless hours on the phone with them trying to run different numbers in different scenarios. The scenario that we came up with, I believe, is much, much better than what was introduced in the governor's budget message.”
