Continuing healthy trends forecast for NJ.

Despite the turbulence exhibited in the stock market this past summer, the outlook for the New Jersey office market remains very positive and upbeat. Overall, Central and Northern New Jersey markets have continued to exhibit growth, presenting both challenges and opportunities for every segment of the commercial real estate industry.

The Third Quarter numbers show only a statistically irrelevant drop in average gross lease rates and minor increase in overall vacancy rates as compared to this year's First Quarter statistics. Coupled with the rebound of the stock market, the numbers make up a snapshot of the Garden State office market. And this picture serves as an excellent indicator that bodes well for 1999.

The first half of 1998 saw the vacancy rates in the Class A and B markets decline to single-digit levels. According to Torto Wheaton Research (TWR), the forecasting group of CB Richard Ellis, Inc. (NYSE:CBG), vacancies dipped to 8.87 percent - down from a rate of 11.58 percent during the same time period in 1997. Moreover, most recent statistics show that the Garden State office market is ending the year on a pretty high note.

The strong performance of the past year and positive forecast for the coming year is dramatically shown in Third Quarter statistics of three of the state's largest and most prestigious office submarkets: Morris, Bergen and Middlesex counties.

Vacancy rates in Morris County dropped to only 8.46 percent, down from 9.32 percent for the same time period in 1997. And the average gross lease rate for the market was a lofty $22.51, a substantial increase from the 1997 rate of $20.55.

In Bergen County, vacancy rates dropped from 11.02 percent last year to 8.93 percent, as of the Third Quarter of 1998. The average gross lease was a hefty $22.92 for the time period in 1998, up from $20.18 in 1997.

And in Middlesex County, vacancies went down to 12.67 percent in 1998, a dip from last year's 14.4 percent. The county's rental rate rose to $20.47, up from $19.03 in 1997.

Moreover, the numbers show that New Jersey remains a key northeastern office region, and the signs for 1999 (with Wall Street's ongoing bullish market) remain positive. Nationally, the Garden State market ranks fifth out of 57 U.S. markets tracked in total square footage for multi-tenant office buildings, according to CB Richard Ellis, which tracks approximately 1,185 Northern and Central New Jersey office properties (each containing 30,000 square feet or more of net rentable space).

In regard to the forecast for the foreseeable future, TWR projects continued increases in both asking rent and absorption in New Jersey, for the next few years. Between 1998 and 2003, TWR projects absorption averaging 2.9 million square feet per year, potentially pushing vacancies below 5 percent by the end of 1999. In addition, market rents over the same period are expected to increase 9.4 percent per year, a dramatic reflection of the market tightening.

The vacancy/rental rates point to a tight marketplace and a difficult environment for companies in search of contiguous blocks of Class A space. In addition to the robust economy, the changing real estate needs of the corporate sector is another significant factor in Class A absorption. Companies are looking for superior location, access to major roadways and proximity to other key markets. And when you add the demand for top-of-the-line amenities to the list, businesses are often hard-pressed to find suitable space within existing inventory. This has, of course, created challenges for end-users and owners, as well as real estate services providers.

One property which meets these needs and demands, in grand style, is Overlook at Great Notch, owned by Theta Holding Company, L.P., and located at 150 Clove Road in Little Falls, NJ. The facility is a 425,000 square-foot Class A complex. Theta Holding now has plans to offer an outstanding opportunity for a new building - tentatively called Overlook II at Great Notch - on a tract adjacent to the complex. Like Overlook I, the proposed building is well located, with convenient access to major roadways (Routes 3, 46 and 80, the Garden State Parkway and the N.J. Turnpike), making it easy to get to New York and other parts of New Jersey.

The $10 million shell reconstruction of Two Montgomery Street in Jersey City, owned by Townsend Properties Trust, L.P., of Towson, Maryland, and located in the Waterfront business community, is another CB Richard Ellis project that serves as a splendid indicator of the New Jersey market's condition and the demand for quality office space. MetLife has leased the entire building and upgraded systems to be technologically compatible with the demands of today's office users.

Along with Two Montgomery's high-tech amenities (new modern mechanical and electrical systems, energy-efficient windows and new elevators, as well as redundant fiber optic service), the outstanding location of the building (situated in one of New Jersey's hottest central business districts) was a key selling point, allowing easy interaction between the company's New York and New Jersey corporate divisions.

At CB Richard Ellis, we believe that there are opportunities in utilizing tight Class A markets as springboards to assist institutional owners in renovating and enhancing the value of their existing B market portfolios, as well as marketing of new buildings and build-to-suit opportunities. Through innovative marketing and modernization programs, we've become a driving force in the repositioning of many Class B properties creating substantial value for our clientele.

Our philosophy is that there is a story within every building. To obtain the greatest value for our clients, it is our job to tell the story in a meaningful, effective and compelling manner to the correct prospective tenants. With the positive news in the marketplace, this philosophy has propelled CB Richard Ellis to the forefront as New Jersey's premier commercial real estate service provider.