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FAIRFIELD, NJ-After posting an unprecedented 22.2 million square feet of negative net absorption during 2009 in response to surging availabilities unleashed by corporate consolidations in the Northern and Central New Jersey industrial market, an uptick in leasing requirements helped to counter these losses during the first quarter of 2010.

Just over 182,800 square feet of negative net absorption occurred in the 644-million-square-foot Northern and Central New Jersey industrial market during the first three months of 2010, according to a recent report from locally based Grubb & Ellis Co. This was in stark contrast to the same period one year ago, when more than eight million square feet of negative absorption was recorded, as many business sectors aggressively reduced their industrial real estate holdings in response to the economic downturn.

In fact, quarterly negative absorption figures have been trending lower during the past year. After recording more than eight million square feet of negative absorption during each of the first two quarters of 2009, 3.8 million square feet occurred in the third quarter, followed by less than 1.1 million square feet during the final three months of 2009. “The diminished volume of negative absorption could indicate that many industrial users have completed their restructurings, which is allowing the limited demand to absorb the current availabilities,” says the report’s author Stephen Jenco.

A closer look at the state’s industrial market revealed that the Northern and Central New Jersey market regions were moving in divergent directions during the first quarter. With an inventory base consisting of predominantly older, lower ceiling manufacturing-oriented facilities, many Northern New Jersey submarkets continue to be impacted by consolidations, which boosted availability rates higher, Jenco tells GlobeSt.com. The Northern New Jersey overall industrial availability rate increased from approximately 12.1% at year-end 2009 to 12.6% in early 2010 in response to 1.4 million square feet of negative net absorption. This was in addition to nearly 11 million square feet of negative absorption registered in Northern New Jersey during 2009. “With the exception of the Passaic/I-80/ Route 3 and West Essex submarkets, the remaining eight Northern New Jersey markets posted negative absorption figures during the first quarter,” Jenco says.

In contrast, increased warehouse space requirements generated more than 1.2 million square feet of positive net absorption in Central New Jersey during the first quarter. Since reaching 16.3% during the third quarter of 2009, the Central New Jersey overall industrial availability rate has slipped lower during the past six months. “In fact, by early 2010, the Central New Jersey industrial availability rate was below the 16% mark,” Jenco relates. Despite the lower availability rate, more than 48.2 million square feet of direct and sublet space remained available in the Central New Jersey industrial market, while 42.5 million square feet was being marketed in Northern New Jersey.

A large portion of the 1.4 million square feet of negative absorption that took place in Northern New Jersey during the first quarter can be traced to activity in the Meadowlands submarket, which has remained in the spotlight during much of the past year due to a lethal combination of sluggish demand and corporate reorganizations. “The transitional conditions produced nearly 3.4 million square feet of negative net absorption in 2009,” says Jenco. “During the first quarter of 2010, more than 635,600 square feet of negative absorption occurred in the Meadowlands submarket, which represented the largest volume of negative absorption in the Northern and Central New Jersey industrial market.” The Meadowlands has reported negative absorption during the past eight consecutive quarters dating back to mid-2008. What’s more, with the exception of Q3 2008, more than 500,000 square feet of negative absorption occurred during each of these quarters, as a surging tide of additional availabilities swamped this submarket. Nearly 12.9 million square feet was available in the Meadowlands in early 2010 compared to 7.6 million square feet being marketed in mid-2008.

Contributing to the negative absorption in the Meadowlands submarket during the first quarter was Vitamin Shoppe’s decision to vacate 117,170 square feet at 2101 91st St. in North Bergen. In addition, Organize It All is moving out of 104,270 square feet at 125 Central Ave. and 86,630 square feet was placed on the market for sale or lease at 79 County Ave. in Secaucus.

“With the Northern and Central New Jersey industrial availability rate climbing to 14.1% in early 2010, the transitional market conditions are anticipated to encourage flight to quality opportunities for companies seeking to upgrade their spacing needs, while locking in financially favorable lease packages,” says Jenco. “The recent uptick in leasing activity illustrates the ongoing corporate consolidation and relocation activity that has defined the current industrial market cycle.” After remaining just below $5.80 per square foot in 2008, the Northern and Central New Jersey average asking industrial rental rate has consistently retreated throughout 2009 and into early 2010. By the first quarter, the average asking rental rate was less than $5.30 per square foot. In Central New Jersey, the average asking rental rate for big-box warehouse space with ceiling heights greater than 25 feet has been under the $5 per square foot mark since the Q3 2009. According to Jenco, rental rates are not anticipated to stabilize until sustained demand can absorb the significant availabilities currently impacting the industrial market here.

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