The absence of sustained demand by companies needing additionalspace, spanning several consecutive quarters, has been a recurringtheme during the past year. Since eclipsing 21% at year-end 2004,the New Jersey overall availability rate fluctuated just below thislevel during subsequent quarters in response to the ongoing battlebeing waged between supply and demand. These transitionalconditions are expected to persist until demand can outpace theadditional space generated by consolidations.

Despite the low volume of absorption witnessed in the officemarket, a closer look at recent leasing trends indicates that theclass A and B markets have been moving in divergent directions.More than 546,000 sf was absorbed in the A market during the thirdquarter compared to nearly 500,000 sf of negative absorptionoccurring in B. The class A availability rate subsequently slippedfrom 20.3% at mid-year to less than 20%, while the B availabilityincreased from 20.2% to more than 21% during this timeframe. Justover two million sf has been absorbed in the class A market sincethe beginning of 2007, as many companies pursue flight-to-qualityopportunities by relocating their operations from B to A space.

Demand for class A product is expected to remain a leading themeof the office market as companies take advantage of competitiverental rates to lock in favorable leasing packages. After trendinghigher from year-end 2006 and nearing $28.75 per sf (plus tenantelectric) by mid-2007, the Northern and Central New Jersey averageasking class A rental rate retreated to approximately $28 per footby Q3. The average asking rental rate for A space is now at itslowest level in a year. Effective rents, reflecting free rentallocations in signed leases, are likely to be ranging lower,especially in submarkets impacted by significant Aavailabilities.