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PARSIPPANY, NJ-Lease renewals by tenants looking to lock in favorable rental rates has failed to offset consolidations among firms as they adjust their office space needs following layoffs. That has led, according to a second-quarter report from FirstService Williams, to a jump in statewide office vacancies to 22.6% from 20.8% in Q1.

That latest number is the highest it’s been since the fourth quarter of 2004. Seven of the 10 counties included in the FSW survey saw availabilities rise. Sublease space as a percentage of the total market, meanwhile, climbed slightly to 21%, up from 20.4% in Q1. However, that is a decrease from a year ago when the rate stood at 23.2%.

Matt Dolly, managing director of research and marketing for FSW, tells GlobeSt.com that the rise in vacancies is due to the market adjusting to lower employment levels following corporate layoffs. “The commercial market doesn’t react until nine to 12 months afterward,” he says. “A firm reduces its employees, then it evaluates its space needs and then it may consolidate. That’s when the space goes on the market. It takes some time.”

Yet some savvy tenants are taking advantage of the opportunity to lock in favorable rental rates for an extended period, and landlords are happy to oblige by lowering rental rates and giving concessions, Dolly says. In some instances, owners are listing their rents as negotiable. Average asking rents in the state inched down from $24.46 in Q1 to $24.32 a square foot at the present time.

“Tenant retention is paramount right now,” he explains. “Landlords have to stabilize their assets, and hopefully they get a good credit tenant to stay in their building for a while.”At the same time, tenants are taking a look at the credit of the landlord as well. “They want to make sure the landlord will still own the building [they are going into],” Dolly says. “For the first time, tenants are also concerned with landlord credit and not just the other way around.”

Overall, Dolly says the office leasing market is slow. Tenants may be perusing the market for new office digs, but actual signed leases have yet to materialize in any great number. “There is a lot of indecision in the air,” he says, due to the upcoming governor’s race, a new administration in Washington, DC and a still shaky economy.

However, he points to several active tenant sectors that include shipping companies, which want to be near the state’s rail system; third-party data center providers; healthcare practices; and telecommunication firms. In geographic terms, the Hudson Waterfront has been slumping, while Newark has seen an uptick in activity.

Dolly also says efforts to improve the state’s incentive packages could reap benefits. “Those programs are being paid attention too a bit more as companies get benefits for hiring employees in New Jersey,” he says.

Further aiding the marketplace is a dearth of new construction. “There’s been some small buildings here and there, but nothing major,” Dolly says.

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