Northern/Central state markets show signs of recovery.

According to the Summer 2004 New Jersey Office & Industrial Update by Torto Wheaton Research, a unit of CB Richard Ellis, the Northern/Central New Jersey office and industrial markets are well on their way towards recovery and are experiencing very healthy conditions.

Torto Wheaton Research reports that there are several factors driving the improving commercial real estate market in Northern/Central New Jersey, including office employment and measured economic growth, continued de-centralization of major corporations from New York City, the emergence of New Jersey's urban markets and the state's international trade importance.

"New Jersey as a whole is experiencing very healthy trends and is poised for continued measured economic growth through the remainder of the year," said Raymond G. Torto, principal and chief strategist of Torto Wheaton Research. "The first and second quarters of 2004 have produced an increase in job growth and therefore an increase in net absorption of commercial real estate. National and international trends driving demand for warehouse space at Exit 8A and the ports, jobs moving inland and the transition towards 24-hour cities all contributed to the success of New Jersey's real estate marketplace this past quarter. I expect New Jersey to continue this positive momentum throughout the remainder of the year."

In the office sector, several months of job growth have been a significant catalyst. Office vacancy declined by 40 basis points in the second quarter to 16.2%, which puts vacancy back at a rate comparable with early 2002. Office vacancy had been declining over the last three quarters, but only at an average quarterly pace of 10 basis points. The sharp decline in the second quarter suggests that the market is experiencing something more important than just a negligible improvement in a few statistics. Both sublet and direct vacancies fell 20 basis points to 2.3% and 13.9%, respectively, in the second quarter.

The increase in job growth and lower commercial and residential rental rates in New Jersey's suburban markets attribute most of the improvements in total vacancy rates inland. Suburban vacancy declined 60 basis points in the quarter to 17.7%. Meanwhile, downtown vacancy was unchanged at 13.7%.

Average asking rents fell in Northern/Central New Jersey in the second quarter to $22.69 per s/f, which places overall rents down 2% from a year ago.

The decline was even sharper for the class A segment of the market, reaching an average of $23.90 per s/f in the second quarter or down 2.5% from a year ago. Class A asking rents now stand 5.3% lower than the peak levels of 2001.

Availability rates in New Jersey's industrial sector also took a turn for the better in the second quarter. Across the sum of markets, availability declined to 11.4% from 11.7% in the previous quarter. Stronger net absorption statistics are due to industrial production and manufacturers' shipments, inventories and orders that are all showing solid improvement over the past six months. Northern/Central New Jersey possesses one of the largest warehouse markets in the country, with its waterfront ports and industrial big boxes at Exit 8A.

Rental rates are generally improving quickly throughout the Northern/Central New Jersey industrial market. At $7.91 per s/f in the second quarter, the Trenton submarket in Central New Jersey has seen a double-digit percent gain over the last four quarters. Experiencing nearly as strong gains in rent in the second quarter were the Jersey City, Monmouth-Ocean county and Middlesex-Somerset-Hunterdon county submarkets. Only the Newark submarket is currently experiencing a year-over-year decline in rents.

Nonetheless, Newark saw a small improvement in the second quarter, with the average industrial rents reaching $5.89 per s/f.