New Jersey market showing signs of resilience.

Despite the inevitable economic slowdown that began over a year ago and the corporate real estate re-evaluations resulting from the attack on the World Trade Center, the New Jersey office market is still showing signs of resilience.

While there's no denying that New Jersey's loss of 20,000 jobs during 2001 after years of escalating employment has caused leasing velocity or tenant demand to become sluggish, there is still demand in the market and deals are being made. 2001's total leasing velocity of nearly 13.7 million SF throughout New Jersey, while considerably less than 2000's record level, was a better performance than the four previous years' totals for leasing.

New Jersey's diverse tenant base, which makes the state less reliant on one or two major industries as in other areas of the country, has provided some stability in the market. Even so, the economic downturn has affected the state's markets differently, with some submarkets faring worse than others. New Jersey's hardest hit submarkets, Parsippany and the Route 78/287 Corridor in Morris and Somerset Counties, experienced a large amount of the state's total negative net absorption of 4.9 million SF. Telecommunications giants AT&T and Lucent added 2.5 million SF to the sublet market through consolidations, which contributed substantially to this oversupply. The vast amount of new construction in the Route 78/287 Corridor submarket has been another significant contributing factor.

The New Jersey Waterfront and the Princeton submarkets have been areas less affected and continued to show strong investment, leasing and building activity during 2001. New office development has grown these markets significantly during the past several years, often predicated by a 50% or better tenant pre-lease commitment.

This glut of sublet space, some of it the result of the collapse of the telecom market and the downturn in the stock market, is the most troubling aspect of current market conditions. While average asking rents have leveled off at around $26 per SF, this may be affected by discounted sublet space being shed by companies looking to improve their bottom line.

Landlords will most likely be offering more generous concession packages in the short-term to offset competition from the sublease market.

While the general economic weakness of the past 12 months has also contributed to office vacancies approaching 18%, most economists are predicting a modest, sustained rebound to begin during the third and fourth quarters of 2002. Clearly all prognostications are subject to this anticipated economic recovery, and the office and industrial markets currently present the most risk for investors. In the interim, multi-family and retail properties, due to a lack of supply, will be aggressively pursued, especially by institutional investors who consider this product type a safe haven.

Increased consumer confidence of late bodes well for this projected economic rebound. If the global markets follow suit and return to their pre-Sept. 11 growth mode, Corporate America should respond with confidence toward the end of 2002. In the interim, New Jersey office markets may benefit from a shift in corporate real estate plans that opt for an increased number of locations, avoiding a highly condensed operational structure in any one location in response to America's ongoing war on terrorism.