Vacancy rates rose slightly from the previous quarter, from17.56% to 17.79%, but decreased from 17.95% this time last year.The vacancy rate in Northern New Jersey was 16.58%, up from 16.31%last quarter and down from 16.85% in the first quarter of 2007.Central New Jersey continued this trend. The area's vacancy rate of19.57% was a slight rise from last quarter's 19.37% but lower thanlast year's 19.58%.

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Leasing velocity overall has slowed considerably. Companies haveadopted a wait-and-see attitude regarding the economy and areseeking shorter-term deals, a situation that seems unlikely tochange in the near future.

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Despite the economy, there were several leases signed for morethan 40,000 sf during the quarter. AXA Equitable Life InsuranceCompany took nearly 225,000 sf at the Newport Tower in Jersey City.AXA expects to move more than 800 employees to the new site fromNew York. Standard Chartered Bank signed a lease for 45,000 sf atTwo Gateway Center in Newark. In Morris County, National ExchangeCarrier Association extended its lease for 55,000 sf inWhippany.

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Sublease opportunities have risen to represent 18.41% ofavailable space, mostly due to layoffs and consolidations.Employers nationally have cut payrolls by about 160,000 in thefirst three months of 2008, and continued labor cuts are likely todampen the outlook for the office market. The current subleasenumbers represent an increase of nearly 1 percentage point over thefourth quarter of 2007. Sublease space increased in seven of the 10New Jersey counties researched over the past year.

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Average asking rents across the state stand at $25.52 per sf, anincrease from both the first quarter 2007 and the fourth quarter2007. While rents increased in Northern New Jersey to $25.30 from$25.07 last quarter, they decreased slightly in the central partsof the state, to $23.53 from $23.81 in the fourth quarter and$23.98 in the first quarter 2007.

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Overall, the uncertainty for the state's future business climateis causing many tenants to remain in their current spaces,resulting in a dip in leasing velocity. However, tenants stayingwhere they are causes an increase in occupancy in landlords'portfolios. That, combined with a lack of new construction, hascaused rents to rise slightly in the strongest markets. Althoughthe weak employment market is a concern, for the time being, theoffice market is reasonably stable.

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Matt Dolly is director of research and marketing atGVA Williams's office in Parsippany. He can be reached at [email protected].

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