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SOURCE: CBRE

For 3Q 2007, New Jersey’s combined industrial sales and leasing velocity—at 7.2 million sf—declined nearly 40% compared to the 11.9 million sf recorded in 3Q 2006. The availability rate, at 7.4%, increased 0.3% from 3Q 2006′s 7.1%. Still, the average asking sale price was $82.56 per sf, an impressive increase of $13.56 per sf, or 16%, from the $69.00 per sf of a year earlier, while the average asking rent inched up by $0.31 per sf from 3Q 2006′s $5.89 per sf to $6.20 per sf.

The market is clearly at an inflection point, and owners who have seen years of price growth are now confronting increased market uncertainty. Similarly, occupiers are paying close attention to the market, and many firms are waiting to see how market disturbances will affect their businesses.

Landlords of all sizes are beginning to see the impact of the slow down and are looking to stabilize their assets. Tenants are renewing, relocating and expanding at attractive occupancy costs. We’re also seeing firms securing long-term transactions at attractive rates. To date, there are a significant number of deals in the pipeline or planning stages.

Assuredly, this trend will continue and equilibrium will return to the market as it has in the past. History has shown that when this happens, it happens quickly. Once the market reaches equilibrium, look for pricing to level out, particularly among the majority of the turnpike corridor submarkets.

Additionally, there is an abundance of new construction, both planned and underway—due in most part to Brownfield redevelopment. On top of new space coming online, mergers, consolidations, the decline of manufacturing and general industry malaise is causing a great deal of sublease and shadow space to hit the market simultaneously. This could (and probably will) cause downward pressure on several submarkets over the next few quarters.

Furthermore, traditional New Jersey boundaries are disappearing; large industrial occupiers no longer look at Northern, Central and Southern New Jersey as three separate submarkets. Instead, these regions are blending into one mega-market, which often includes parts of Pennsylvania and New York State. Logistic and point-of-indifference studies, as well as sophisticated financial analysis, have opened up search areas previously thought of as too far removed geographically.

New Jersey and New York ports are certainly generating additional opportunities for warehousing and distribution. The more goods that flow through these ports, the more warehousing space is needed. One concern is port diversification among shippers and users. Savannah, Charleston and especially Norfolk are all poised to grow extensively. In fact, Maersk, looking to the future, just built a massive port facility in Norfolk. Developments like this could lead to less growth than anticipated for this region.

New Jersey’s location, labor force and infrastructure are among the best in the country, which will insulate it from major downturns. While the short-term future of the New Jersey industrial market may be slightly turbulent, opportunities will abound. We predict that by this time next year, or possibly sooner, velocity will increase and stability will return to the market. For occupiers, the next two or three quarters will be the time to act.

Bill Waxman is a senior vice president at CB Richard Ellis, and is co-leader of the company’s port logistics practice.

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