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PARSIPPANY, NJ-With vacancies rising and rents diving, tenants that seek advantageous lease deals can get their wish in the current Northern and Central New Jersey office market, according to a Q3 report from FirstService Williams. For both regions, the overhang of vacant office space has reached 23.9%, its highest level since the fourth quarter of 2003. As a proportion of the total market, sublease space decreased slightly to 20.1% for the quarter, down from 21.3% a year ago.

By and large, New Jersey landlords “have adapted to the demands of a tenants’ market,” the reports states. Tenants are more likely to preview more space options in an attempt to put pressure on their current landlords. Further, space seekers are willing to expand their geographic boundaries to score a favorable economic deal.

Some owners have reduced asking rents, while others simply advertise them as negotiable, particularly in class A buildings. Currently, asking rents in Northern and Central New Jersey stand at $23.90 per square foot, down from $24.32 in Q2 and $24.85 a year earlier.

Matthew J. Dolly, locally based managing director of research and marketing for FirstService Williams, tells GlobeSt.com that he was surprised by the number of landlords marketing their properties at negotiable lease rates. However, he predicts that the downward spiral of rent reductions will end.

“Some landlords cannot be that flexible and cannot lower their rents,” he says. “Others can, but at some point, they have investors they need to answer to, and they just can’t keep lowering them. I would say that the bulk of that activity is probably behind us at this point.”

Until employment growth happens, the market will remain in search of its bottom. “Unless you have a gain in jobs, the office market is not going to completely turn around,” Dolly says. “We’re not there yet, but we’re close.”

Most active in the marketplace are medical firms and industries that support education. Conversely, law practices continue to reorganize their space needs, dumping excess footage on the marketplace.

In recent weeks, several large deals have been announced in the marketplace, such as law firm Day Pitney LLP taking 100,000 square feet at 1 Jefferson Rd. here. And in a major coup, the Depository Trust & Clearing Corp. has decided to move from Lower Manhattan to 415,000 square feet in Jersey City.

However, Day Pitney is downsizing from larger space, and DTCC is not moving here until 2013. Although activity is picking up a bit, Dolly says, such large deals are few and far between.

“There have been several, but some are downsizing from larger space in other markets,” he says. “There haven’t been too many that are growth.”

For the remainder of 2009, FSW predicts that “tenants and landlords will continue to engage in heated negotiations until job growth improves and unemployment levels off.”

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