Jersey positioned for powerhouse industrial performance.

The nearly two percentage point drop in New Jersey's overall office vacancy rate recorded by Cushman & Wakefield, Inc.'s New Jersey research team during 2006 reflects continued forward movement in the face of sluggish job growth and economic uncertainty.

On the industrial side, strong demand for warehouse/distribution space continues to position the Garden State as a powerhouse for industrial leasing, according to the firm's findings.

In Northern New Jersey, overall office vacancy rates declined 2.1 percentage points during the past year to reach 16.5 percent--the lowest level since 2001.

"The Hudson Waterfront benefited from a booming New York City office market in 2006," noted Gualberto "Gil" Medina, executive managing director of Cushman & Wakefield's New Jersey operations.

"As the number of prime space availabilities declined in Manhattan, the lure of cheaper rents and incentives resulted in 1.4 million square feet of leasing in Jersey City alone."

Among the most notable office deals, Citigroup sublet 316,775 s/f from UBS at Newport VII, while Merrill Lynch expanded its lease to occupy 236,350 s/f at 101 Hudson Street.

"Within the resurgent City of Newark, leasing activity was the strongest in five years," Medina added.

Law firm Gibbons, Del Deo, Dolan, Griffinger & Vecchione relocated from 1 Riverfront Plaza and took 111,828 s/f previously occupied by the F.B.I. Morgan Stanley sublet 87,000 s/f from Verio Inc. at 165 Halsey Street.

Outside these two red-hot submarkets, in Morris County Quest Diagnostics leased 141,000 s/f vacated by Daiichi Pharmaceuticals at 3 Giralda Farms in Madison, and The Louis Berger Group Inc. will relocate its headquarters from East Orange to 108,332 s/f at Kemble Plaza II in Morris Plains.

As available space continues to decline, cautious but optimistic developers have begun to build on speculation again. During the fourth quarter, The Andalex Group broke ground on two buildings, totaling 125,000 s/f within the Sylvan Corporate Center complex in Englewood Cliffs, and Kwartler Development commenced construction on the 66,000 s/f Country Club Campus Plaza II in Paramus.

Boosted by a steady demand for warehouse/distribution product, New Jersey remained a prime destination for industrial space during 2006.

Tenants leased 26.2 million square feet during the year, including 65 transactions in excess of 100,000 s/f.

Middlesex County continued to lead activity, with blockbuster transactions including MailCon's lease of 630,000 s/f within Monroe Township and Cranbury and Williams Sonoma's 418,300 s/f commitment at Turnpike Crossing III in South Brunswick. In Northern New Jersey's Meadowlands submarket, Worldwide Distribution committed to 414,417 s/f at 1000 Secaucus Road, and Equinix Inc. leased 338,850 s/ f at 755 Secaucus Road.

"This activity resulted in a 5.8 million-square-foot drop in available space in Northern New Jersey, focused mainly in a tightening Meadowlands region," Medina said.

"In contrast, due to slow lease-up of new construction and several large new vacancies in Middlesex County, available product swelled by more than 6.3 million square feet in Central New Jersey."

To satisfy the growing demand for modern facilities, developers completed 10 warehouse/distribution buildings totaling 4.4 million square feet during 2006, of which 61% currently sits vacant. Nearly 95% of the new construction was located in Middlesex and Mercer counties, including IDI's 1.35 million-square-foot facility in South Brunswick and Rockefeller Group's 680,787 s/ f FTZ building in Cranbury.

Developers also broke ground on several major developments during the year. Within the rapidly expanding Northeast Business Park at Exit 7A, Matrix Development Group commenced construction on three warehouse/distribution facilities. Panattoni Development broke ground on the first W/D facility within the iPort12 International Trade and Logistics Center in Carteret. This project is being constructed on brownfield sites previously containing three inactive landfills that were capped.

"Although steady industrial demand is expected, the slow absorption of new construction and glut of available space in Central Jersey will be of concern in the coming months," Medina said. "Up north, we will see the expanding Port Region pick up momentum as cargo moving through the Port of New York and New Jersey continues to increase," Medina added. "As part of New Jersey's Portfields program, the redevelopment of brownfield sites will continue to transform that market into a desired area for new construction."