Report: New Jersey economic recovery hasn't gained traction.

Marcus & Millichap Real Estate Investment Brokerage Company, the nation's largest real estate investment brokerage firm, recently released its Office Research Report for the New Jersey market, which indicates that the economic recovery has yet to gain traction and increasing vacancies have put downward pressure on effective rents.

"Northern New Jersey's office market has proved to be resilient," comments Mitchell R. LaBar, senior vice president and regional manager who oversees the firm's New Jersey, New York and Connecticut offices. "Although the market will endure a difficult period for the remainder of this year, the improving economy is expected to lift conditions by mid-2004."

Following are some of the most significant aspects of the report:

* Employment dipped by 0.7% in 2002, as the local economy lost jobs for the second straight year. Northern New Jersey lost 15,000 jobs in 2002, a decline of 0.7%. The transportation and utilities sector is expected to stabilize and show little change in employment in 2003, while the services sector will lead the economy and record 1.7% growth for the year. Overall, Northern New Jersey will post a mild gain in total employment of 1% by year end.

* Completions fell to 2.9 million SF in 2002 and construction activity will continue to be muted in 2003. The pace of office construction in Northern New Jersey will slow to 2.4 million SF in 2003.

* Marketwide vacancy, estimated at 15.3% in the first quarter, is expected to rise to 16% by year-end 2003. Overall vacancy in the region fared better than expected in 2002, at 15.2%, but is headed up in 2003. Forecasts call for vacancy to reach 16% by the end of the year. Absorption turned positive in 2002, but was still outpaced by construction, with average vacancy rising as a result.

* After peaking in the second quarter of 2002 at $21.84 per SF, effective rents dipped to $21.47 per SF by the end of year.

Rents throughout the Northern New Jersey market will rise slightly, from $21.47 per SF at the end of 2002, to $21.71 per SF by year-end 2003.

* Office values are up, especially in areas with solid Class A space and ready transport links to Manhattan. Values will rise slightly in 2003 as investors sense that the bottom of the market has passed. Buyers spent $1.6 billion on Northern New Jersey office properties in 2002, the highest volume in the past five years.