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Cautious optimism pervades NJ office market.

Since the end of 1991, the total amount of available space and overall vacancy rates have increased in both class-A and classB markets. However, class-B space continues to come on the market at a much faster rate while class-A space is being absorbed at a significantly quicker rate. This variance indicates the continuing trend of tenants upgrading into better quality facilities.

Although overall absorption increased from the fourth-quarter of 1991, it was primarily because of the significant preleasing that occurred during previous quarters. For example, the 600,000-square foot Merrill Lynch lease at 101 Hudson Street in Jersey City and New Jersey Transit's 225,000-square-foot lease at Hartz's project in Newark are now reflected in absorption as the buildings have been completed. While leasing activity improved slightly, it was primarily due to consolidations and relocations rather than expansions.

With the financial pressures of the weak economy and increased competition, downsizing has been a common trend. For example, International Business Machine's worldwide effort to shrink operations and sell assets is now localized as the company recently announced it will close its 650,000-square foot facility in Franklin Lakes. Virtually all of the 800 people affected have been offered employment at other IBM locations, many of which are located in New Jersey, New York and Connecticut.

On a more positive note, American Airlines announced plans for a $20-million renovation and expansion at its Newark International Airport terminal. The New Jersey Economic Development Authority, an independent self-supporting state agency, has issued a $17.86 million tax exempt bond to help finance the project. This agency, which does not rely on any backing from the state and therefore is no burden to taxpayers, is helping to stimulate the economy as the project is expected to create more than 500 construction jobs over the next year. In addition, the opening of Sandoz Pharmaceutical's $50-million Research Institute at its 180-acre complex in East Hanover was also encouraging. The 150,000-square foot building is the first phase of Sandoz's $1 billion growth plan, 40 percent of which will be dedicated to research and development. In addition, a $20-million quality control center is expected to be completed by the spring of 1993.

Nationally, during 1991, there was a 35 percent decrease in the American trade deficit as the year closed with $66.2 billion deficit. In the hopes the United States continues to hold down imports and increase exports, the economy will continue to rise throughout 1992. Locally, there is a renewed sense of enthusiasm as well. With high hopes for increased activity throughout 1992, landlords of both Class-A and Class-B projects have regained confidence as they have slightly increased their average asking rents since the end of 1991.
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Title Annotation:Review and Forecast, Section I; New Jersey
Author:Eisen, Donald P.
Publication:Real Estate Weekly
Date:Jun 24, 1992
Previous Article:Watch for trends to lead us out of storm.
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