NJ office construction booms as landlords count on continued demand.

New Jersey's office market had a banner year in 1998, recording the third highest annual total of leasing activity this decade. During the year, 8.9 million square feet of office space were leased and new construction boomed, adding 4.6 million square feet to the state's inventory. And although the supply/demand balance was temporarily upset by this additional space, landlords, apparently bullish on the state's economic well being, raised rents an average of 9 percent across the state.

These were among the findings reported today in the New Jersey Insignia/ESG Office Market Report for Year End 1998, which provides a detailed analysis of the 20 geographic areas that comprise the Northern and Central New Jersey submarkets. The report includes 687 buildings totaling 139 million square feet of space.

According to the report, 26 new buildings were in various stages of construction during 1998. Although only two buildings totaling 200,000 square feet were actually completed by year-end, all were added to the state's inventory. This new stock, along with several large blocks of space returned by tenants, combined to produce negative net absorption of 2.3 million square feet for the year. This additional new space, however, is expected to be spoken for relatively quickly, assuming the trend of high single- to low double-digit million square-foot annual leasing totals continues.

Leading the 1998 New Jersey leasing sweeps was the Route 287/78 Interchange submarket, where 930,000 square feet were leased. The Parkway Corridor, in a major resurgence, recorded 880,000 square feet leased, as did the Hudson Waterfront, its "Gold Coast" intact. The lively Parsippany submarket tallied 760,000 square feet leased, and Princeton listed 530,000 square feet leased for the year.

Landlords, betting on sustained demand, increased rents in most submarkets, ending the year at a $23.12 per square foot average across the state. The Chatham/Millburn/Short Hills submarket, with average rents of $33.71 per square foot, continued to be the most expensive place to rent an office in New Jersey. Princeton, where rents were up 23 percent to $26.03 per square foot, posted the year's biggest gain in average asking rents. The Hudson Waterfront, with its spate of new construction, recorded a 14 percent increase in average asking rents to finish the year at $27.49 per square foot.

Other submarkets where rent increases were in double-digit percentages were Orange/Rockland, which increased by 14 percent to $22.71 per square foot, and the Meadowlands, Parsippany and Morristown, which recorded 11 percent increases each.

Average asking rents declined in only two submarkets. The Route 23/Paterson/Wayne segment, with the state's highest availability rate of 26 percent, recorded a 2 percent dip in asking rents to $19.27 per square foot, and the Montvale/Woodcliff Lake submarket, with a 20.2 percent availability rate, saw rents fall by 4 percent to $21.31 per square foot.

The Insignia/ESG Office market report also provided an in-depth examination of the Parkway Corridor submarket, which experienced a dramatic upturn in fortunes over the past two years. During this period, the overall availability rate in this submarket, which ranges from Woodbridge to Union, dropped almost 10 percentage points, closing 1998 at 8.2 percent and putting the market in supply/demand equilibrium for the first time this decade. During 1998, with 880,000 square feet leased in the submarket, the Parkway Corridor's available inventory was reduced to 780,000 square feet - a 55 percent reduction from the 1.7 million square feet recorded in 1995 and 1996.