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EAST RUTHERFORD, NJ-With rents decreasing, tenants have the upper hand in office space negotiations in the northern portion of the state. That was one of the findings of the Q1 Cushman & Wakefield Inc. overview of the Garden State commercial real estate market.

In Northern New Jersey, overall weighted average asking office rents fell from $26.91 per square foot at the end of 2008 to $26.45 per square foot currently. Overall vacancy rates, however, did improve slightly, decreasing from 16.5% in December to a present level of 16.3%.

“As the office market continues to fluctuate, landlords are choosing to offer more flexibility to tenants,” says Gil Medina, executive managing director of C&W’s New Jersey operations. “We are seeing many owners marketing space as ‘negotiable,’ instead of quoting rental rates. This, in turn, is empowering tenants to achieve smarter deal terms.”

The opposite trends were seen in the central part of the state. There, overall weighted average asking office rental rates rose to $24.14 per square foot in Q1 from $23.75 at year-end 2008. Meanwhile, the overall amount of untenanted space did increase 0.8 percentage points between the fourth quarter of ’08 and the first quarter, resulting in a current 20.3% vacancy rate.

Yet the state did rack up some notable deals in the first three months of this year. Verizon leased 153,000 square feet in Livingston; the Children’s Place took 119,979 square feet at 500 Plaza Dr. in Secaucus; and Eisai Medical Research Inc. signed a duo of deals for 118,000 square feet at 155 Tice Blvd. and 41,000 square feet at 300 Tice Blvd., both in Woodcliff Lake. In addition, Johnson & Johnson expanded its existing space from 112,000 square feet to 162,000 square feet at 23 Orchard Rd. in Skillman.

Investment volume in Northern New Jersey plunged over 50% from a year ago. In one noteworthy deal, ING Clarion Partners sold One Meadowlands Plaza, a 422,220-square-foot building here, to CB Richard Ellis Investors for $61 million, which represents half of what ING Clarion purchased the property for in 2005, reports C&W.

Sales activity in Central New Jersey was slow as well. But one major deal did take place: Inland Real Estate acquired 55 Corporate Dr. in Bridgewater for $230 million. The 670,000-square-foot complex is currently occupied by Sanofi Aventis.

C&W points out that while only four Central New Jersey sales transactions closed during the first three months of this year, based on square footage the totals surpassed three out of the four quarterly tallies charted in 2008.

On the industrial front, consolidations have resulted in a wave of space coming back onto the market. That, in turn, has pushed up the industrial vacancy rate by 0.7% from the fourth quarter to a current level of 7.9%.

Moreover, direct average asking weighted rents have edged down, going from $6.72 per square foot at the end of last year to $6.59 in the first quarter. Leasing volume, which reached two million square feet in Q1, was only 30% of the total registered a year ago, when it swelled to more than six million square feet.

“The days of big-box leasing have come to a sharp halt, and we expect renewals to play a major role this year as rents decline further,” Medina says.

Nevertheless, several significant transactions larger than 100,000 square feet closed in Q1. In Jersey City, wholesale food merchant Continental Coffee Co. leased an entire, 238,799-square-foot building at 112 Port Jersey Blvd. And at 108 Industrial Dr. in Jersey City, Star Snacks signed on for 154,000 square feet of warehouse space.

Despite slumping demand and a shrinking construction pipeline, more than one million square feet of new industrial space is slated to come on line this year. So far in ’09, a 583,376-square-foot warehouse/distribution building located at 140 Docks Corner Rd. in South Brunswick has been completed, but stands vacant. Yet that same property also accounted for the largest industrial sale of the year, as BlackRock Realty acquired the building from JG Petrucci Co. Inc. for $42.5 million.

C&W notes that industrial investment sales during the first quarter came in at 1.5 million square feet, versus 5.9 million square feet during the first quarter of 2008. “Sales activity will remain sluggish, and companies that have investment capital will hold onto their resources,” Medina says. “We expect the tighter financing climate to bring investment sales totals this year to levels as low as those prior to 2006.”

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