By the numbers, a slowing regional economy will hinder jobcreation, leaving total employment unchanged in 2008. Last year,11,500 new workers were hired, a 0.5 percent gain. Builderscompleted 1.1 million square feet of space in 2007 and willincrease production to 3.5 million square feet this year. Most ofthe amount is attributable to the Xanadu project, which is slatedto come online in the fourth quarter. Assuming reasonably strongpre-leasing at large projects and softening demand for existingproperties, the marketwide vacancy rate is expected to climb 70basis points this year to 4.9 percent. In 2007, the vacancy ratewas unchanged. Rent growth will continue to slow in step withweaker space demand. In 2008, asking rents are forecast to rise 2.4percent to $28.63 per square foot, while effective rents tack on 2percent to $26.51 per square foot.

During the past 12 months, velocity in single-tenant assets hasdeclined 58 percent, compared with a gain of 61 percent in thepreceding period. Velocity has slowed to a trickle for allsingle-tenant property types, including drugstores and fast-foodrestaurants. In a limited number of fast-food deals, prices haveranged from $284 per square foot to $432 per square foot for aregional chain along a heavily traveled stretch of state Route 35.Generally, assets leased to highly rated national tenants can tradewith cap rates in the mid- to high-6 percent range, extending to 8percent or more for lesser tenants and locations. In 2008, lenderswill continue to draw distinctions on credit quality, effectivelylimiting single-tenant activity to assets occupied by tenants withthe best credit profiles.

Trades of multi-tenant properties have slackened considerably.In the past year, transaction velocity for these assets hasdeclined 45 percent. Activity has been very limited so far thisyear, but during the last 12 months, the median price has increased21 percent to $234 per square foot. Some strip centers andgrocery-anchored properties have sold for more than $300 per squarefoot, but those deals were executed before credit market problemsintensified late in 2007. Cap rates for the best properties inestablished retail corridors in Bergen County, for example, startat about 6.5 percent. Initial returns rise from there toapproximately 8 percent for assets in highly urbanized areas of theregion. Multi-tenant activity is expected to pick up in 2008 asowners adjust pricing to satisfy buyers' requirements. Highpopulation densities and generally strong demographics in mostareas in the region are expected to sustain investor interestduring the long term.