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PARSIPPANY, NJ-Sublease space has hit a six-year high in the Northern New Jersey office market, according to a Q3 report from Jones Lang LaSalle. Average asking rents for sublet space, which now stands at more than 7.5 million square feet, fell below $22 per square foot for the first time in nearly three years.

For the first time in the market’s history, available direct and sublease space climbed to a total of more than 40 million square feet. Likewise, leasing activity is on track to finish the year with the lowest tally in the market’s history with just over 1.5 million square feet leased during the third quarter.

All signs point to a market that remains on search for the bottom. “It still has a bit of a way to go,” Daniel Loughlin, managing director at the JLL office here, tells GlobeSt.com. “There is some shadow space that hasn’t yet hit the market. Some of it is due to pending pharmaceutical consolidations and other downsizing we anticipate.”

A pickup is far on the horizon. “The market will turn the corner when employment picks up, which is anywhere from 18 to 36 months away,” Loughlin says.

Much of the leasing activity revolved around smaller deals and renewals. So far in ’09, there have been just five transactions greater than 100,000 square feet, the largest of which was Savvis Communications’ 208,635-square-foot lease at 1919 Park Ave. in Weehawkin, which was inked in the third quarter. In comparison, there were 16 such deals through the first three quarters of 2008. The majority of the medium-sized deals–20,000 square feet to 60,000 square feet–were renewals.

According to Loughlin, rents for class A direct space range from $28 to $30 a foot, with the highest numbers found in the Waterfront, at $32. Those figures are down about 10% from last year, he notes. The hardest hit markets include the lower 287 Corridor, Upper Bergen, the Parkway Corridor and Route 80/23.

However, with landlords competing aggressively for tenants, now is a good time for space users to negotiate new deals. “But not everybody has the ability in their business plan to implement that strategy,” Loughlin says. “Some are less confident in the economy going forward and are therefore looking for flexibility and trying to negotiate better terms to lower their occupancy costs where they are. Others that feel their business is solid and that the worst is over are taking advantage of the market and looking at relocation opportunities to get into a higher-quality facility at low rates for an extended period of time, as well as additional TI dollars and other rental concessions.”

Year-to-date sales volume totaled $36.5 million, a 71% decline from the $126.9 million tally recorded in the same period in 2008 and an 82% drop from $205.7 million in 2007. The largest deal in the quarter was the Silverman Group’s $11.5-million acquisition of the 122,000-square-foot 161-163 Madison Ave. building in Morristown from Trammell Crow.

Compared to the height of the market in Q1 2007, current cash flows have experienced value declines of more than 40% based on rental drops, rising vacancy and the availability, terms and cost of debt, JLL reports.

The only construction activity in the third quarter involved two properties fully leased by FMC Corp.: the 56,000-square-foot 801 PrincetonSouth and the 54,000-square-foot 701 Princeton, both in Ewing.

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