Certain submarkets continued to record up-ticks in vacancy, butthere were a handful that experienced declines in the last threemonths as leasing activity picked up and less space was placed ontothe market. During the fourth quarter, there were just nine blocksof space in excess of 40,000 square feet added to the market. Theprevious three quarters of 2009 averaged 15 such blocks of spacemade available for lease. Much of the diminishing space during thefourth quarter occurred in Bergen County, the Waterfront andParsippany; all of these markets recorded more than aone-percentage point decrease in their vacancy rates, which nowstand at 23.7%, 25% and 12.2%, respectively.

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Although there was an increase in leasing activity during thefourth quarter, the year-to-date total was the lowest in recenthistory for New Jersey, with 8.2 million square feet leased.Renewals accounted for almost 40% of all fourth quarter leasing,including five of the top 10 transactions. This comes as littlesurprise, as there are still many tenants who are undecided orputting a hold on real estate decisions until the economy showssigns of improvement. Since a year ago, the overall average askingrental rate has fallen almost 5%, to $25.01 in Northern New Jerseyand $22.54 in the southern part of the state, as space optionscontinued to grow for tenants.

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Clearly, the uncertain economic future has made cost containmenta top priority for tenants. As a result, those deals that aregetting done are mainly short-term renewals, says Jospeh Sarno,executive director of Cushman & Wakefield, based in Edison."We're seeing fewer capital dollars available for companies torelocate into new spaces and fit out those spaces. So new leasingactivity has been lower than in previous years."

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Given the sluggish leasing landscape, it's no surpriseconcessions are up in the Garden State. "There have been atremendous number of tenants looking for some rent relief orupfront concessions in exchange for additional terms," Sarno says,"and in many instances we're seeing landlords accommodate theserequests."

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Concessions aside, there isn't much more that can be done toincite transactions, says Mike Fasano, vice president and regionalmanager of Marcus & Millichap Real Estate Investment Services'Elmwood Park office. "If breaking even is $20 or $22, you reallycan't go much below that."

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Although the market is quite weak, unique product that's wellpriced and located will continue to see demand, Sarno says,"especially in light of the fact that the pricing is much moreaggressive than it was in the past several years."

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According to JLL's Daniel J. Loughlin, "We are seeing moreactivity. It feels like companies in 2009 were petrified to make adecision, but their budgets are now allowing them to expand, evenif just slightly." He adds that we will continue to see companiesconsolidate and find space that is more efficient.

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A potential bright spot for landlords: there were five deals inexcess of 100,000 square feet that closed in the last three months.In comparison, there were five throughout the first three quartersof the year. JLL expects vacancy to level sometime in 2010, whileasking rents should continue to slip, albeit at a slower pace.According to Loughlin, we should start show some signs ofimprovement in early 2011.

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