NJ office market marked by brisk construction, rising rents.

Strong leasing velocity and rising rents underscore a healthy New Jersey office market, New construction is underway in impressive numbers amid strong pre-leasing activity, and the state's waterfront continues to attract big business.

But some key indicators, namely the net absorption of space statewide and a rising space availability rate, point to a market that hints at slackening.

These were among the findings reported today in Insignia/ESG's Second Quarter 1999 New Jersey Office Review, a detailed analysis of the 20 geographic submarkets that comprise the Northern and Central New Jersey markets. The report tracks activity in 697 office buildings totaling 141 million square feet of space.

According to the Review, more than 3 million square feet of space was leased statewide during the quarter. This brings the total for 1999 to more man 4.4 million square feet, a velocity that has been surpassed only twice in the last six years. The New Jersey Waterfront is indeed a "Gold Coast," with more than 1.6 million square feet leased during the quarter, well ahead of its nearest competitor, the Route 287/78 interchange, submarket where 350,000 square feet were leased. Predictably, the state's largest leases were written for space in new Jersey City buildings.

Despite an extremely active market, year-to-date net absorption of space was in the negative column at -1.48 million square feet. The submarkets most affected were those with the deepest concentrations of older buildings: Route 287/Piscataway/Brunswick (-430,000 square feet); Urban Essex (-380,000 square feet); and Route 287/78 Interchange (-360,000 square feet).

A corresponding increase in the availability rate, rising to 12.82 percent versus 11.17 percent at the same time last year, is partly due to the impact of large amounts of new construction being brought to market. Currently 33 new buildings totaling 6.5 million square feet are underway, with about 3.1 million square feet pre-leased. The market demand for new sophisticated "smart" buildings is clear. Availabilities were also expanded by the return of several large blocks of space to market. These included the Bellcore offices in Red Bank, Prudential's space in Iselin and the Degussa-Huls facilities in Franklin Township.

Overall confidence and strength in the economy and in New Jersey's office market is reflected in rising rents. Statewide rents averaged $23.53 per square feet, a 5 percent increase over this time last year and an impressive 22 percent increase since midyear 1994. But it is the individual submarkets that tell the tale. Continuing to lead the state's rental sweeps, the Chatham/Millburn/Short Hills submarket posted average rents of $33.57 per square foot, slightly below the 1998 mid-year average of $33.88. On the Waterfront, asking rents averaged $28.23 per square foot, a substantial 15 percent increase over 1998. And in Princeton, where major new construction is underway after a 12-year hiatus, asking rents averaged $26.97, a phenomenal 27 percent jump from 1998's $22.08. Again, the attraction of new, sophisticated buildings designed for business in the 21st Century cannot be underplayed.