Another banner year for investment sales in Garden State.

Unabated investor demand fueled by ongoing capital market expansion led to another banner year for investment sales in New Jersey during 2006.

Activity levels clearly indicate that the seismic shift toward real estate as one of the most attractive investment sectors has continued. Cushman & Wakefield's Metropolitan Area Capital Markets Group alone exceeded $2.4 billion in closed transactions during the past 12 months.

Pension funds have increased their average allocation for commercial real estate. Many maintain real estate allocations representing 6-8% of their investment portfolios. Opportunistic investors have become highly visible in the market as well, often working alongside active developers to fund valueadd transactions. Capital from overseas investors continues to flow into New Jersey as well. REITS, insurance companies and private investors remain a significant part of the mix.

Where are investors putting their money?

Class A office assets remained the darling of investment activity, with more than 15.2 million square feet and $2.8 billion in sales closed this year. In addition, the $184 psf average sale price and an average transaction size of $57 million for 2006 are both new records. This activity is remarkable, especially considering New Jersey's less-than-impressive office market fundamentals.

Retail properties also are among the most sought-after in the Garden State. Vacancies remain in the low single digits, and consumer spending has helped retailer performance. Still, a lack of product made for a slow investment year. Those properties that were offered to the market were met with frenzied bidding.

Almost the same thing can be said for industrial. Our team typically orchestrates about $300 million in industrial sales each year. During 2006, we completed only $200 million in industrial investment sales. Yet buyers for those properties we did market paid 20% or more above replacement cost.

For-sale housing activity, which had been strong during 2005, skidded to a halt during the first quarter. On the other hand, demand has soared for rental apartment assets. A lack of new product, stable employment figures and a shift away from buying homes have created strong consumer demand for rentals. Property owners are projecting up to 8% growth per annum. Sales like Crystal Ridge Club in Watchung, which sold at a sub-five percent cap rate, demonstrate the strength of the market and buyer recognition of the potential move-up in rents.

One notable trend among investors active in the New Jersey market involves the shift from public companies buying private firms--like Mack Cali's acquisition of Gale early in the year--to private firms buying public companies. Morgan Stanley acquired Glenborough, most recently, SL Green announced it would purchase Reckson, and, while both companies are public, the New Jersey assets are being spun off into a private entity.

We believe that this public-to-private activity will continue in the coming year, with heavy involvement by equity players and hedge funds.

Our projections for the coming months also include an anticipated improvement in the New Jersey office market. Brokers are feeling optimistic and we are seeing increased movement among tenants. Additionally, outstanding momentum in the Manhattan market already is beginning to spill over onto the Hudson Waterfront and other key submarkets like MetroPark and Newark.

Considering that the investment market performed so well during a sluggish office climate, these improvements will provide even more strength. With this in mind, and looking at the substantial number of deals already in the pipeline, we fully expect that 2007 will be another stellar year.

By Andrew Merin, vice chairman,

Cushman & Wakefield, Inc.

Metropolitan Area Capital Markets Group