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SADDLE BROOK, NJ-Asking rents in both the office and industrial markets have continued to decline in Northern and Central New Jersey in the second quarter, according to CB Richard Ellis. Those rental decreases, however, are having a different impact on each sector. While the office market persists on a downward track, lower industrial rates are luring in tenants.

Due to 1.5 million square feet of space delivered in Q2, office availabilities in Northern/Central New Jersey rose to 21.5%, a record high since the firm began tracking the market in 1990. For the quarter, leasing velocity came in at roughly 865,000 square feet, a 196,265-square-foot drop from the previous quarter and down 920,000 square feet from the same time in ’08. Net absorption totaled a negative 1.6 million square feet, as several large blocks of space were returned to the market, including 142,500 square feet in Montvale; 87,650 square feet in the Jersey City Waterfront submarket; and 86,254 square feet in Parsippany.

Yet there were pockets of activity. Princeton racked up 145,078 square feet of leasing activity; followed by Parsippany with 98,554 square feet; and the 287/78 Interchange submarket which had 89,852 square feet.

Submarkets with the lowest availability rate included the Route 17 Corridor with 8%, down from 8.8% in Q1; the Hudson Waterfront at 12.1%; and Suburban Essex/Eastern Morris counties at 14%.

Notable transactions in Q2 included: Virgin Mobile’s 90,396-square-foot lease at 10 Independence Blvd. in Warren Township; Dey LP signing for 53,517 square feet at 110 Allen Rd. in Bernards Township; Metavante Corp.’s 51,000-square-foot contract at 400 Plaza Dr. in Secaucus; and Global Aerospace, Inc.’s 47,891-square-foot deal at 1 Sylvan Way, Building C, in Parsippany.

Despite the bleak outlook currently, Jeff Hipschman, senior managing director at CBRE, expects the office market will eventually turn the corner. “We believe that a recovery is on the horizon, as job losses stabilize and pricing for new listings remains ‘negotiable,’ creating opportunities for tenants and owners alike,” he says.

Q2 average asking rents in the Northern/Central New Jersey office market dropped 25 cents compared to last quarter, landing at $25.20 per square foot. Sublease asking rents made a bigger plunge–54 cents per square foot–versus direct asking rents–15 cents per square foot.

Meanwhile, in the industrial sector, reduced rents appear to be drawing in a small cadre of tenants, thereby trimming vacancy rates in several submarkets. “Entrepreneurial tenants have taken advantage of this market swing by signing long-term leases at lower asking rates,” states William Waxman, senior vice president at CBRE, “while institutional firms and Fortune 500 companies have been more hesitant to react.”

This drive to lock in lower rents has resulted in a slight drop-off in availability rates in some submarkets, including Linden/Elizabeth, which is down to 12.3% from 12.7%, and Trenton/295–down to 19.5% from 21.7%. Market-wise, however, the vacancy rate stands at 11.3%, up from 10.3% in Q1.

Several submarkets registered an increase in vacant space, most notably, the Brunswicks/Exit 9 area, up to 15.2% from last quarter’s 9.8%–due primarily to the relocation of Church & Dwight Co. to Pennsylvania–and the Morris Region, up to 17.9% from 14.2% in Q1 as a result of Alcatel-Lucent’s facility coming to market.

Net absorption was still in negative territory at 6.5 million square feet, although it was an improvement of 900,000 square feet over Q1′s tally of 7.3 million square feet in the red.CBRE senior vice president Mindy Lissner comments that landlords have become more realistic in their pricing, which, in turn, has sped up the pace of transactions. “We are advising our clients to continue to be aggressive and take advantage of the opportunities that have been created during this challenging downturn,” she says.

Northern New Jersey’s industrial market ended the quarter with an overall leasing volume of over one million square feet, up from Q1′s total of 921,766 square feet. The highest activity was reported in the Meadowlands, the Route 46/23/3 Interchange and the Morris Region submarkets, which had a combined sum of 772,229 square feet.Among the more prominent deals were: East Coast Warehouse’s 263,717-square-foot lease at 150 Industrial Dr. in Jersey City and International Paper’s 230,953-square-foot deal at 261 River Rd. in Clifton.

In something of a surprise, Central New Jersey posted better performance numbers than Northern New Jersey. The central region ended the quarter with 2.4 million square feet of leasing activity, nearly double the 1.1 million square feet charted in Q1, with the Exit 8A, Trenton/295 and Route 287/Exit 10 submarkets making a strong showing. Notable leasing transactions in those markets included Gentek Building Products’ 310,000-square-foot lease renewal at 11 Cragwood Rd. in Avenel and Laser Logistics inking a contract for 248,000 square feet at 147 W. Manor Way in Robbinsville.

Average net asking lease rates in Q2 stood at $5.76 per square foot, representing a 14-cent decrease from the previous quarter. Though the Suburban Essex submarket experienced a 59-cent drop, lease rates in Northern New Jersey remained largely unchanged. In Central New Jersey, the overall rates declined by nearly 4%, with the most significant drop occurring in the Route 78 East submarket–a $1.64 decrease from Q1, while the Brunswicks/Exit 9 submarket recorded a 28-cent increase from last quarter, resulting in the highest availability increase across the state.

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