Just over 182,800 square feet of negative net absorptionoccurred in the 644-million-square-foot Northern and Central NewJersey industrial market during the first three months of 2010,according to a recent report from locally based Grubb & EllisCo. This was in stark contrast to the same period one year ago,when more than eight million square feet of negative absorption wasrecorded, as many business sectors aggressively reduced theirindustrial real estate holdings in response to the economicdownturn.

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In fact, quarterly negative absorption figures have beentrending lower during the past year. After recording more thaneight million square feet of negative absorption during each of thefirst two quarters of 2009, 3.8 million square feet occurred in thethird quarter, followed by less than 1.1 million square feet duringthe final three months of 2009. "The diminished volume of negativeabsorption could indicate that many industrial users have completedtheir restructurings, which is allowing the limited demand toabsorb the current availabilities," says the report's authorStephen Jenco.

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A closer look at the state's industrial market revealed that theNorthern and Central New Jersey market regions were moving indivergent directions during the first quarter. With an inventorybase consisting of predominantly older, lower ceilingmanufacturing-oriented facilities, many Northern New Jerseysubmarkets continue to be impacted by consolidations, which boostedavailability rates higher, Jenco tells GlobeSt.com. The NorthernNew Jersey overall industrial availability rate increased fromapproximately 12.1% at year-end 2009 to 12.6% in early 2010 inresponse to 1.4 million square feet of negative net absorption.This was in addition to nearly 11 million square feet of negativeabsorption registered in Northern New Jersey during 2009. "With theexception of the Passaic/I-80/ Route 3 and West Essex submarkets,the remaining eight Northern New Jersey markets posted negativeabsorption figures during the first quarter," Jenco says.

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In contrast, increased warehouse space requirements generatedmore than 1.2 million square feet of positive net absorption inCentral New Jersey during the first quarter. Since reaching 16.3%during the third quarter of 2009, the Central New Jersey overallindustrial availability rate has slipped lower during the past sixmonths. "In fact, by early 2010, the Central New Jersey industrialavailability rate was below the 16% mark," Jenco relates. Despitethe lower availability rate, more than 48.2 million square feet ofdirect and sublet space remained available in the Central NewJersey industrial market, while 42.5 million square feet was beingmarketed in Northern New Jersey.

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A large portion of the 1.4 million square feet of negativeabsorption that took place in Northern New Jersey during the firstquarter can be traced to activity in the Meadowlands submarket,which has remained in the spotlight during much of the past yeardue to a lethal combination of sluggish demand and corporatereorganizations. "The transitional conditions produced nearly 3.4million square feet of negative net absorption in 2009," saysJenco. "During the first quarter of 2010, more than 635,600 squarefeet of negative absorption occurred in the Meadowlands submarket,which represented the largest volume of negative absorption in theNorthern and Central New Jersey industrial market." The Meadowlandshas reported negative absorption during the past eight consecutivequarters dating back to mid-2008. What's more, with the exceptionof Q3 2008, more than 500,000 square feet of negative absorptionoccurred during each of these quarters, as a surging tide ofadditional availabilities swamped this submarket. Nearly 12.9million square feet was available in the Meadowlands in early 2010compared to 7.6 million square feet being marketed in mid-2008.

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Contributing to the negative absorption in the Meadowlandssubmarket during the first quarter was Vitamin Shoppe's decision tovacate 117,170 square feet at 2101 91st St. in North Bergen. Inaddition, Organize It All is moving out of 104,270 square feet at125 Central Ave. and 86,630 square feet was placed on the marketfor sale or lease at 79 County Ave. in Secaucus.

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"With the Northern and Central New Jersey industrialavailability rate climbing to 14.1% in early 2010, the transitionalmarket conditions are anticipated to encourage flight to qualityopportunities for companies seeking to upgrade their spacing needs,while locking in financially favorable lease packages," says Jenco."The recent uptick in leasing activity illustrates the ongoingcorporate consolidation and relocation activity that has definedthe current industrial market cycle." After remaining just below$5.80 per square foot in 2008, the Northern and Central New Jerseyaverage asking industrial rental rate has consistently retreatedthroughout 2009 and into early 2010. By the first quarter, theaverage asking rental rate was less than $5.30 per square foot. InCentral New Jersey, the average asking rental rate for big-boxwarehouse space with ceiling heights greater than 25 feet has beenunder the $5 per square foot mark since the Q3 2009. According toJenco, rental rates are not anticipated to stabilize untilsustained demand can absorb the significant availabilitiescurrently impacting the industrial market here.

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