New Jersey is one of country's strongest markets.

According to the 1998 Real Estate Forecast produced by the Research Department of Grubb & Ellis, the New Jersey suburban office market is one of the strongest in the country.

Joseph R. Romano, executive vice president and district manager for Grubb & Ellis New Jersey, said "1997 was a good year for the economy in general and for real estate in particular. The investment sector was particularly strong, with the growth end merger of REITs such as Cali/Mack, Reckson and Wellsford. Office properties were purchased as soon as they became available with preemptive offers becoming common as supplies dwindled. The disappearance of target properties and the competition from bidders caused cap rates to drop dramatically."

Additionally, Romano added that, "On the office leasing side, rents rose to the mid-$20's range as availability rates dropped below 10 percent in key market areas. Developers, with capital now available, found lead tenants for long-planned projects, and speculative projects will become a reality in 1998. The industrial market has already seen the onset of speculative building, and this trend should continue to grow in 1998 as the market expands. Despite bankruptcy filings by several major chains, the retail market also grew. Vacant stores were picked up by new chains coming into the New Jersey market and by a new emphasis on free-standing stores with name visibility.

"With a strong economy and low unemployment, we expect that these trends will continue and that 1998 will continue to see an extremely strong real estate industry in New Jersey," Romano said.

Grubb & Ellis' in-house research department also reported that the lack of Class A space in the state has resulted in new speculative development being started and the continuation of the trend of tenants relocating to Class B buildings. "Rising rental rates coupled with strong demand has encouraged speculative development throughout Northern and Central New Jersey," Romano said. "While these new projects have begun to take shape, they will not impact the market for 18 to 24 months. Therefore, the supply of quality space will continue to be very tight in the near term, increasing competition among tenants and the continuation of rising rents."

Grubb & Ellis also reported that companies are expanding in the state at an aggressive pace. Class A leasing activity throughout Bergen County and in the Princeton, Piscataway/I-287 sub-markets remain very strong. At the end of 1997, Grubb & Ellis reported that Class A space availability was down to 10.26 percent from 11.23 percent during the same period in 1996. In the Class C market, there was a positive net absorption of 542,508 square feet of space. In Class B space, the average asking rental rate has exceeded $20. In Class A space, the state's prime areas are above $27, while the Hudson waterfront has eclipsed $29 for the first time. These increases have caused the Class A average for the entire market to reach $24.54, according to the third quarter analysis of Grubb & Ellis.

Sales and mergers stole the headlines in 1997, according to Grubb & Ellis. Paine Webber and Morgan Stanley acquiring the Bellemead portfolio and the Cali-Mack merger were two of the biggest deals. Additionally, Toronto-based TrizecHahn Corporation's acquisition of the Newport Tower for $159 million reflects the strength of the Hudson waterfront sub-market. Grubb & Ellis' research shows that the overall availability along the waterfront has dropped to 6.7 percent, while the Class A market has achieved an availability rate of 2 percent.

"The area's appeal among Manhattan companies continues due to lower taxes and a less regulatory burden," Romano said. "In the investment market, Wall Street and institutional investors continue to pump a tremendous amount of capital into New Jersey real estate. Crown Properties, Cali, Reckson, Gale & Wentworth, Wellsford Commercial Properties Trust and Ivy Equities are the players securing mayor positions throughout the state. Investors are beginning to shift towards secondary markets for added-value growth with greater upside potential."

According to Romano, "All of our indicators point to another 18 to 24 months of continued upward pressure on prices and rents. With speculative growth still off in the distance, we expect that prices will continue to rise in the near future as investors and tenants continue to fight for quality space, which is in great demand. In the interim, redevelopment among Class B and C buildings will be the next wave of growth in the state." Romano concluded.