While the tri-state corridor's investment real estate market exhibits considerable vigor in terms of sales, leasing and new construction, activity varies as widely as vantage point and location. The region simultaneously experiences declining space for lease and rising rents; relocations and downsizing which increase product availability in one sector; and varying degrees of new office and industrial construction.

"Fairfield County's vacancy rate continued to decline to record levels during the past year, dropping to 9.7% by yearend," reports Donald P. Eisen, executive managing director, New York area, Cushman & Wakefield Inc. "While activity slowed toward the end of 1998, Fairfield's real estate market recorded another impressive year of growth."

C&W's Research Services Group attributes the declining fourth quarter activity to the slowing economy, lack of available space in some areas and labor shortages.

Net absorption of nearly 740,000 sq. ft. resulted from approximately 3.7 million sq. ft. of leasing activity, according to Klein, citing a year-to-year increase of $2.88 in the countywide average asking rent for Class A and B office space to $24.30 per sq. ft. Stamford had the highest asking rent, $26.63 per sq. ft., and the Fairfield East sector the lowest at $19.72 per sq. ft. Prime space in Greenwich and Westport commands the highest rental prices - in the mid-$40 range - says Klein.

Rents in Stamford's CBD are in the $33 to $37 per sq. ft. range.

"With vacancy rates low and supply unable to meet growing demand, the issue of new consturciton is paramount in Fairfield County," says James Fagan, managing director at CB Richard Ellis."Significant new construction seemed inevitable at the start of last year, but later economic concerns and fears of more sublet space becoming available created market discipline forestalling new development. As capital markets ease, we anticipate new projects will g et underway."

Planned speculative development will ease Fairfield County's tight office market. A partnership between Davis, David A. Mack Properties and Prudential Real Estate Investors will yield the first of a three building, 400,000 sq. ft. project in Shelton this spring, while Louis Dreyfus Group, Wilton, plans to develop 770,000 sq. ft. of office space in Wilton and Stamford in a joint venture with Apollo Real Estate Investment Fund II.

The return of the 500,000 sq. ft. former GTE world headquarters to the market in Stamford increases the downtown space inventory. Zurich Re repurchased the building for the relocation of 400 employees of its Zurich Centre Group from Manhattan. While cancelling the move, the company is honoring a pledge of $12.5 million to help pay for the new Harbour Yard ballpark in Bridgeport.

Conditions are quite different in contiguous Westchester County - beset by corporate relocations and downsizing - where office rents increased conversely with higher inventories, elevating vacancy rates to about 18% - a 3% gain over the previous year.

"Westchester County's negative net absorption of more than 307,000 sq. ft. stood out in stark contrast to the more than 1 million sq. ft. absorbed in 1997," according to Newmark & Co. executive managing director John Goodkind. C&W reports 1998 leasing activity of 2.2 million sq. ft., with the asking rental rate for the county rising $1.46 per sq. ft. to $25.57 per sq. ft. Available space increased nearly 1 million sq. ft. to more than 5.5 million sq. ft. The return by Oxford Health Plans, Texaco and Nine West of more than 500,000 sq. ft. to the market more than offset the upturn in leasing, while the retrofit of 360 and 445 Hamilton Avenue in White Plains, as well as the former Kraft Foods headquarters for multi-tenant use, added another 1.3 million sq. ft.

With large corporate tenants deserting Westchester, small leases for expanding local companies dominate the market. Failure to attract sole users has caused many vacant single-occupancy buildings in White Plains to undergo upgrading and repositioning for multi-tenant leasing.

The 10-county northern New Jersey commercial real estate market, comprising nearly 150 million sq. of space - more than twice the size of Fairfield and Westchester's combined - is robust and thriving.

Strong office leasing and sales intensely compete with a steadily increasing supply of speculative space as New Jersey's economy continues to boom, averaging 60,000 new jobs annually in the past five years. Estimates place current speculative construction at 4 million sq. ft.

"We in New Jersey are at a crossroad where supplies of office space are getting slightly ahead of demand, and critical monitoring of the market is called for," reports Robert J. Rudin, executive managing director of Insignia/ESG.

The Insignia/ESG market survey cites an office vacancy rate at 12.6% and 1998 leasing volume at 8.6 million sq. ft. Negative absorption totaled 2.3 million sq. ft. Average rents are $23.16 per sq. ft. compared to $21.41 a year ago.

But, Rudin contends, there are vast differences between today and the early 1990s, when availability rates exceeded 18%. "Supply is being added in a more orderly fashion, despite some surprise consolidations of several of the state's major firms."

C&W of New Jersey's Research Services Group reports the lowest vacancy rates and the highest average asking rents during this decade. Strong demand for Class A space drove up the average asking rent to $26.57 per sq. ft., a yearly increase of $1.80, with some markets commanding $30-plus per sq. ft for new Class-A space.

"Due to high demand, landlords are offering fewer tenant improvement dollars, and longer lease terms of 10 to 15 years are becoming more common," Eisen says. "New construction added nearly 1.8 million sq. ft. to last year's office inventory with another 2.2 million sq. ft. planned for completion during the next 12 to 18 months." Without factoring in new construction, C&W estimates last year's leasing volume at more than 10 million sq. ft., with net absorption exceeding 4 million sq. ft.

And CB Richard Ellis, employing still different measuring criteria, arrives at net absorption of less than 1 million sq. ft. New Jersey managing director Jeffrey M. Schotz expects newly developing office space to have a negligible effect on 1999 vacancy rates.

"New construction kicked the rate on the Hudson River waterfront up over 18% at one point in 1998, but that was just a blip,"says Seena Stein, president of Newmark Partners Inc. in Rutherford. "I'm sure the vacancy rate will settle down and the market will be fairly tight again by the end of this year."

The Jersey City waterfront, opposite lower Manhattan's financial district, is again heating up with two major office projects underway, others ready to launch and strong demand generating investment sales.

Prudential Real Estate Fund II's $175 million sale of Exchange Place Centre, a 30-story, 700,000 sq. ft. Jersey City waterfront structure, to BBV U.S. Real Estate Fund III of Germany was New Jersey's largest 1998 sale.

North Jersey's industrial market matches the office sector's vigor, with the vacancy rate declining to less than 7%, according to C&W, which reports nearly 2.6 million sq. ft. of new inventory space built last year. The sector saw a 4.5% increase in the average asking rental rate for warehouse/distribution space to $4.68 per sq. ft. and a 12.4% rise for manufacturing facilities to $4.04 per sq. ft.

"If there are no unpleasant economic surprises, it's likely that demand will continue to outpace supply," says Benjamin Katz, senior managing director at Insignia/ESG.

CB Richard Ellis reports net absorption of industrial facilities at more than 7.4 million sq. ft., and pegs the rise in average asking rents from $4.97 to $5.09. Sullivan notes the trend increasing from purely distribution to high-tech, back-office and light-assembly use.

While speculative industrial construction is scattered across the region, there's considerable build-to-suit activity. RPS Inc. has broken ground for a 435,000 sq. ft. package delivery center in Woodbridge. Fuji Photo Film USA is building a 465,000 sq. ft. regional office and distribution center in Edison.

Givaudan Roure is constructing a 180,000 sq. ft. flavors and fragrances manufacturing/distribution facility at the 684-acre International Trade Center in Mount Olive.

"The demand for retail facilities is clearly outstripping the supply," reports Richard Brunelli, president, R.J. Brunelli & Co. Inc. "Right now there's a bidding war for the Caldor stores, with 11 of the 26 locations in New Jersey expected to be taken by Kohl's - the Wisconsin-based retailer specializing in family apparel and home goods."

Caldor, the regional discount chain, is the latest bankruptcy casualty of NJ's retail wars. Brunelli sees Caldor's departure spurring the entry of major chains that have yet to penetrate the metro NY-NJ market.

Strip center and free-standing building vacancy rates along major North Jersey corridors fell to 3.7 % from 5.4% a year ago, Brunelli says.

Development of the only regional shopping center - the 1.3 million sq. ft. Jersey Gardens Value Megamall near Elizabeth -moves toward scheduled completion next fall. Also, Target and Wal-Mart continue their expansion in North Jersey, and several new strip and power centers averaging 300,000 sq. ft. are under construction.

Multifamily markets remain tight, with the largest volume of new construction of luxury apartments concentrated along the waterfront in Jersey City and Hoboken, with other high-rise projects in Fort Lee and Hackensack.

Strong demand was reflected in the lease-up of all 445 apartments in the Atlantic, a 36-story tower in Jersey City, in just five months.

North Jersey's healthy hotel industry also expands lodging stock. Up to a dozen hotels are underway, most extended-stay, limited service or all-suite. Others are being planned in several Hudson waterfront communities. Newest to debut is the 200-suite Club Hotel & Suites by Doubletree in Jersey City. Fairfield's Prime Hospitality Corp., has opened its th ird AmeriSuites hotel in the state in Fair Lawn.

A vigorous economy and demand for new commercial and industrial facilities should provide plenty of vitality for the region's real estate industry through 1999.