New Jersey market shows strong signs of recovery.

According to the third quarter 1997 Studley Report & Spacedata, the New Jersey commercial real estate market continued on its steady course of recovery. Spurred by the ongoing economic upturn, the state experienced a 32 percent increase in leasing activity during the third quarter.

As a result of the brisk leasing activity, the market's overall vacancy rate fell to 13.4 percent, down almost two percentage points from the level reported one year ago.

The market-wide Class A vacancy rate now rests at 9 percent, down from 9.6 percent at mid-year 1997 and 11.6 percent one year ago. "Class A vacancy rates in nine of the 14 sub-markets in Central and Northern New Jersey are now under 10 percent," said Rich Gittleman, senior vice president and co-manager of the New Jersey office of Julien J. Studley, Inc.

"During the past year, every segment of the market experienced a decline in its Class A vacancy rate," continued Gittleman. The I-78 sub-market reported the most dramatic drop, followed by East Bergen. The Wayne/Paterson sub-market appears to be on the road to recovery, he said. Although it is still plagued with a Class A vacancy rate of 21.8 percent, that is down from 24.5 percent during the second quarter.

The Princeton area led leasing activity in the Garden State. During the third quarter, more than one million square feet of space was lease in Princeton, mostly in Class B properties. The overall availability rate plunged by over 10 percentage points from 19.9 percent during the second quarter to a current level of 9.1 percent. Several sizable deals, including Bristol-Myers Squibb for 770,000 square feet at Titus Mill Road and Princeton Financial Systems, Inc. for 62,000 square feet at 600 College Road E., accounted for the bulk of the activity.

"As the market has tightened, there has been a decline in the concessions offered by landlords, and rents in some prestigious buildings have finally reached the level owners had anticipated when they built them," said Gittleman.

Very little sizable space remains in modern Class A buildings, and to fill the void, developers such as SJP Properties are bringing construction cranes back to the Garden State. "However, there is no building boom," Gittleman said. "New construction and build-to-suit activity are underway in certain pockets where tenants can no longer find large blocks of space and rents justify construction, but the market is much more disciplined today than it was in the 1980's."

The excitement in the New Jersey office market during the last year is in part due to growth in some key industries. The state is seeing growth by financial services firms, health-care companies and high-technology firms. Furthermore, smaller, entrepreneurial firms are now fueling the economic development of the state, as evidenced by the fact that the majority of leasing transactions still range from 2,000 to 25,000 square feet. As earnings continue to grow for these companies, there will be new construction and added upward pressure on rents, Gittleman predicts.

Major transactions completed during the second quarter include: In West Bergen, Crestron Electronics at 15 Volvo Drive (50,600 square feet); In Morris County, Berlex Laboratories at 340 Change Bridge Rd. (85,234 square feet); In the I-78 East Corridor, Brother International took 53,333 square feet on Route 202 South Loral Space & Communication Corp. took 47,288 square feet at 500 Hills Drive, and Pagenet took 43,796 square feet at 1001 Frontier Road.

In Princeton, Bristol-Myers Squibb committed to 770,000 square feet on Titus Mill Road, and Princeton Financial Systems, Inc., took 62,000 square feet at 600 College Road E.