Mixed bag in Bergen.

2003 was a year of significant challenges for the New Jersey economy as well as the State's commercial real estate industry.

Although recent trends suggest that a recovery may be underway, it is still too early to predict when this will benefit the office market. Encouraging job gains have reduced the State's unemployment rate to among the lowest in the nation, though many of these positions have been in health care, retail and other sectors that generally do not fill office buildings.

Market conditions in Bergen County during the past year were fairly reflective of the overall condition of New Jersey real estate. 2003 was the year of the lease renewal for Bergen with only seven of the largest 20 transactions involving a corporate relocation.

Landlords maintained an aggressive approach to tenant retention, often providing significant rent reductions and other concessions. As job growth was limited, tenants tended to "fit" well into their existing facilities and were able to avoid the costs and disruptions associated with a move. In fact, virtually all of the renewals were motivated by a pending lease expiration, rather than a need for additional space or a change in business.

The consensus among real estate professionals appears to be that job creation--and therefore leasing activity--will soon follow recent positive economic developments. However, it is likely that at least initially space absorption will be sporadic as many firms still have excess capacity within their portfolios. Furthermore, several significant corporate relocations out of Bergen County and perhaps the State, which are under consideration, may offset some anticipated absorption.

The Northern Bergen market was by far the bright spot for the county. Five of the seven new/relocation transactions were made there, the most recent being PDI's 84,000 square foot lease in Saddle River. The area also benefited from two significant relocations from Rockland County. Barr Labs' lease of 90,000 square feet in Woodcliff Lake and Pentax's recent 50,000 square foot commitment to Montvale reaffirmed the importance to New Jersey of the BEIP as well as Northern Bergen's access to Rockland County's labor pool.

While Central Bergen did not see any new large tenants move-in, the area remained surprisingly stable. Vacancy levels increased by a modest 1.3% and asking rental rates remained virtually unchanged.

The two primary areas of concern for Bergen County continued to be the Meadowlands (including Secaucus) and the George Washington Bridge section of Eastern Bergen. The decades-old trend of companies relocating east-to-west was reinforced by rising vacancy levels and falling rental rates in these areas. Overall vacancy in the Meadowlands rose to 24% during the previous twelve months representing approximately 1.4 million square feet of available space. This occurred in a market where not one office tenant of at least 10,000 square feet in size opened a new office in over a year.

In spite of these challenging conditions, two of the more prominent investment sales of the year occurred in the Meadowlands with One Meadowlands Plaza, East Rutherford, and Copper Ridge, Lyndhurst, trading for approximately $178 and $175 per square foot respectively.

The George Washington Bridge market started the year quietly and was further hurt by two large spaces that became available in Fort Lee. CNBC vacated its 178,000 square foot headquarters at 2200 Fletcher Avenue and Sun Chemical placed its 105,000 square foot office at 222 Bridge Plaza South on the market. The effect of so much space becoming available simultaneously has been dramatic forcing landlords to offer unusually aggressive proposals to prospective tenants.

It is likely that leasing velocity for 2004 in the County will continue to come from small to mid-size tenants, motivated by pending lease expirations. Oftentimes, down-markets offer early renewal opportunities for tenants to lock in low rents.

However, many firms remain cautious about their business plans and growth requirements and prefer the flexibility of shorter-term leases even at the risk of higher future rents. That no group or groups of industries dominated the list of Bergen County transactions in 2003 is reflective of Bergen's diverse corporate base, a trend that should continue, and one of Bergen's greatest strengths as we look forward to the new year.

ROBERT EISENBERG,

FIRST VICE PRESIDENT, GVA WILLIAMS