Jersey cashing in on tightening Manhattan office market.

Despite a slowing economy and increasing unemployment rates in New Jersey, Cushman & Wakefield's third quarter 2006 market research report indicates positive office market activity statewide, with significant improvement recorded in the Northern counties.

The industrial market continues to thrive as well, with strong tenant demand, investor activity and the delivery of new, modern products.

Nearly one million square feet of absorption and a 1.4 percentage point drop in vacancy rates during the past three months reflect a stellar third quarter 2006 performance for the Northern New Jersey office market.

"Brisk activity fueled by a tightening of prime space options in Manhattan and the lure of cheaper space alternatives within Northern New Jersey's urban submarkets helped to push the overall office vacancy rates down to 17%," noted Gil Medina, executive managing director for Cushman & Wakefield's New Jersey operations.

"Despite little change in average rental rates, we have seen increased movement and a growing number of tenants in the market."

The resurgence of the Hudson waterfront continued with large financial service tenants absorbing blocks of vacant space.

Representing the largest lease transaction to date in 2006, Citibank subleased 316,775 s/f from UBS at Newport VII. At Harborside Financial Center I, Deutsche Bank will consolidate operations from locations throughout the metropolitan area, renewing for 90,000 s/f and expanding by another 191,920 s/f.

In the suddenly tight Newark market, where overall vacancy rates have dropped below 11.0%, law firm Gibbons, Del Deo, Dolan, Griffinger & Vecchione took 111,828 s/f of space previously occupied by F.B.I.

More than three million square feet of investor and user sales transpired in Northern New Jersey during the busy summer months.

Newark was home to two of the most significant transactions, including the Wells REIT acquisition of the 1.1 million-square-foot PSEG headquarters at 80 Park Plaza for $147.5 million, and Rutgers Business School's purchase of the lower 11 floors (265,000 s/f) of the former Verizon Communications building at 1 Washington Place.

In New Jersey's central counties, market conditions also continued to improve during the third quarter of 2006. Despite the slowdown in market activity, overall vacancy rates declined slightly during the three-month period, resting at 18.6%, and 223,000 s/f of positive absorption was recorded.

"We are seeing an increased number of tenants driving demand in the market, but average asking rentals have held firm, at $23.81, as landlords continue to try to lure strong credit tenants," Medina said.

"Their success in achieving this goal is reflected in several noteworthy transactions that took place this summer."

Philips Van Heusen expanded by 71,028 s/f within 1001 Frontier Road in Bridgewater and plans to utilize the space as a central customer service operations center. Additionally, Mercury Insurance signed on for its first location in the Garden State, leasing 33,000 s/f at 200 Somerset Corporate Blvd in Bridgewater.

Steady demand for quality products resulted in more than one million square feet changing ownership during the summer, consistent with totals posted during the first half of the year.

The largest deals occurred in Middlesex County, highlighted by Onyx Equities acquiring the three-building, 231,000 s/f Edison Square complex for $24.5 million.

In Old Bridge, Vision Equities LLC and its partner, Grosvenor Investment Management, took ownership of the 205,968 s/f 90 Old Matawan Road from Normandy Real Estate Partners.

OFFICE MARKET STATISTICS BREAKDOWN

Northern NJ        3Q '06   2Q '06   4Q '05   3Q '05

Total Vacancy      17.0%    18.4%    18.6%    18.7%
Sublease Vacancy   3.1%     3.6%     4.4%     4.1%
Overall Rent       $26.62   $26.54   $25.96   $ 26.23

Central NJ         3Q '06   2Q '06   4Q '05   3Q '05
Total Vacancy      18.6%    19.2%    19.5%    20.0%
Sublease Vacancy   4.5%     4.5%     4.5%     4.5%
Overall Rent       $23.81   $23.74   $23.47   $23.70)

Source: Cushman & Wakefield