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CRANBURY, NJ-While the bottom hasn’t dropped out and the industrial market’s fundamentals have held up reasonably well, the dealmaking atmosphere has changed, tied to the economic downturn and financial markets’ meltdown. One trend within the New Jersey Turnpike Exit 8A submarket here, known for its big boxes and arguably the state’s premier submarket, is that the deals have turned small.

“Smaller deals are defining the market, and in fact there’s a reasonable amount of activity in the 100,000-sf and under range at Exits 8A, 7A and 7, and even as you go up north,” says Stan Danzig of Cushman & Wakefield, East Rutherford, NJ. “But a notable shortage of larger deals this year has created a dry spell in the 200,000-sf and up range, which has pushed absorption down throughout the market.

“The good news is that a few tenants that have been hanging out in New Jersey for an extended period of time are appearing to become more active,” Danzig says. “While we’ve seen these potential tenants ‘kicking tires’ in fits and starts, they seem to be more serious now.”

Still, Danzig terms the industrial market “fragile and overbuilt.” According to C&W’s numbers, the vacancy rate has jumped 1.2 points to 7.2% over the past three months. On the other hand, direct rents have held steady at about $6.46 per sf, about the same as a year ago, and “leasing activity has rebounded a bit,” he says.

CB Richard Ellis pegs the availability a bit higher at 8.9% at the end of Q3, almost a point higher than the previous quarter. There was some recovery in terms of absorption, with that figure coming in at a negative 3.23 million sf compared to a negative 7.6 million sf the previous quarter.

“The key to demand for industrial space is the health of retail sales,” says David Houston Jr., president of Colliers Houston & Co. in Teaneck. “This industrial market is primarily a logistics-driven market, and as retail sales go, so does the New Jersey industrial market. So for demand to be healthy, especially for big boxes, consumers must spend.

“The good news is that while vacancy rates have inched up a bit, the market is still out-performing most of the nation,” Houston says. “New construction has moderated, and this will help the market.”

“Although construction activity has been highest in the Exit 8A, Linden/Elizabeth and Monmouth submarkets, there has been a significant slowdown in overall activity,” confirms Mindy Lissner, SVP at CB Richard Ellis in East Brunswick. “That’s been due to the economic downturn, the severe credit crunch and the completion of some large construction projects earlier this year.”

And as far as property sales, “even with all of the bad news in the financial markets, activity continues,” says William Waxman, also an SVP at CBRE. “There have been limited sale availabilities, strong competition for the same product and a flight to quality, all of which has stabilized prices.

“Despite the uncertain future of the economy, we expect local and foreign-owned user/occupiers to continue buying industrial property in this market,” Waxman says. “That’s because these deals are being purchased on an all-cash basis and thus are not subject to financing, a trend we believe will continue through the end of the year.”

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