New Jersey's tale of two leasing scenarios.

Space users and building owners in New Jersey appear to be looking at two different commercial real estate markets. Tenants, who have seen a period of increasing sublease space options, have anticipated significant drops in asking rents on direct space. However, building owners remain insulated from the space glut by primary leases and appear more disposed to wait out the softness than to drop rents precipitously.

Much of the disparity between the viewpoints arises from the remarkable increase in available space in New Jersey during the past year. Many corporations put off any expansion or relocation plans until the economy improved, while other businesses put unneeded space on the market for sublease.

Available space comprised 9.6% of New Jersey's office inventory in the first quarter of 2001, or 14.8 million SF out of a total of 154.6 million SF of office product. One year later, the amount of space for lease had risen to 16 percent of the entire market, or 25.1 million SF out of a total of 156.6 million SF of office property.

Companies disposing of excess real estate created a surge of sublease space that began entering the market in the first quarter of 2001. Subleases climbed from 3.6 million SF at year-end 2000 to 4.4 million SF in the first quarter of 2001. By year-end 2001, sublease opportunities had risen to 9.2 million SF, and they reached 11.1 million SF in the first quarter of 2002, accounting for more than 44% of all space available for lease.

All of this extra office inventory only caused a small decrease in rental rates. New Jersey building owners have dropped overall asking rents from $24.81 per SF in the first quarter of 2001 to $24.33 in the first quarter of 2002. Class A rents have slipped a dollar in the past year, falling from $27.48 per SF in the first quarter of 2001 to $26.48 in the first quarter of this year.

Tenants, however, have expected much more dramatic decreases, and with the sublease influx in mind, they continue to wait for lower rents and enhanced concessions.

But building owners are not in the same situation as a decade ago, a time when overbuilding in the entire metropolitan area created a great deal of empty, unleased new space that took years to absorb. This real estate cycle is different. Even though the bulk of a building may be vacant and on the market for sublease, to the owner it is leased and generating revenue.

With numerous signs of recovery on the horizon (however much they may be balanced by continued signs of uncertainty), owners have adopted a positive attitude that an upturn is soon to arrive. The speed with which this recovery will arrive remains to be seen, but until the prognosis for the economy becomes more clear, owners and tenants in New Jersey may continue to see two different markets.