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The New Jersey office-market recovery appeared to be gaining traction, as evidenced by nearly 1.5 million sf absorbed by mid-year. However, any long-term stabilization of the office market will be dependent on a strengthening New Jersey economy, which had been hampered by tepid employment growth during the past two years.

Since the beginning of the year, New Jersey has only added approximately 15,500 jobs. At this rate, the state would add a total of 23,000 jobs in 2007, less than the 33,900 jobs created in 2006. Furthermore, while solid gains in employment figures were being made on a national level through mid-2007, the slumping housing market combined with the recent meltdown in the lending markets could begin taking their combined toll on the US economy.

In August, the US Labor Department reported that the nation’s payrolls shrank by 4,000 jobs, which reflected the first decline in four years. Future employment data will need to be carefully monitored to determine whether this downturn was a short-term anomaly or the beginning of a trend, wherein companies will become more hesitant about increasing their payrolls. The creation of professional-services jobs are a vital component to future growth within the local and national office markets.

Potential M&As within the pharmaceuticals industry could result in a reshuffling of the major players and their real estate holdings. Contributing to the recent pharma buying sprees has been the need by companies to replenish their in-house R&D drug pipelines through acquisitions. Employing more than 60,000 workers statewide, the pharmaceuticals industry has historically been one of the leading economic and real estate growth drivers for the state.

Many drug firms are either headquartered or maintain a large presence in the Garden State. In early 2007, Kenilworth-based Schering-Plough announced its intention to buy Roseland-based Organon BioSciences for $14.4 billion, while a potential merger between Bristol-Myers Squibb and Sanofi-Aventis made recent headlines. Schering has approximately 7,700 employees in New Jersey, while Organon employs approximately 700. Job layoffs are expected as overlapping positions are eliminated following the acquisition.

But there is good news for the New Jersey market. Surging demand for Manhattan office space is pulling down the Midtown and Downtown Class A availability rates to 6.3% and 7.8%–while driving up average asking class A asking rents to $90 and $59 per foot. As a result, the Northern and Central New Jersey market increasingly becomes a more attractive economic alternative for expanding office users. In mid 2007, class A availability in these two sectors was above 20%, while the average asking class A rental rate was less than $27.60 per foot.

Only five of the 22 Northern and Central New Jersey office submarkets registered average asking class A rents above $30 per sf. The availability of class A product located across the Hudson River at competitive rental rates continue to be powerful selling points for Manhattan companies seeking additional space to accommodate their expanding operations.

Stephen P. Jenco is client-services manager for Grubb & Ellis in Fairfield, NJ.

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