Typically, towns in New Jersey were defined by office parks that seemed to dot the land surrounding every major thoroughfare in the state. The suburban sprawl seen in New Jersey was unlike anything seen throughout the country and was geared towards commuter-centric development with large residential subdivisions separated from office parks that were only accessible via highways and major roads. That vision has changed drastically over the past several years.
I was recently honored to speak at the 11th Annual Meadowlands Conference hosted by the Northeast New Jersey Chapter of the Appraisal Institute to offer my insights on how the definition of an office building is changing and what it means for commercial real estate. The consensus of my presentation was; to understand the office real estate market and the changes happening within it, one has to understand millennials.
Millennials are a subject that has inspired much debate as business owners search for answers on the best strategies to capture their growing purchasing power. This is no different in the world of commercial real estate, especially in the office sector. Instead of an office being strictly focused on providing a place to work, millennials and the employers hoping to attract them seek walkable, amenity rich live-work-play style neighborhoods which are a far cry from the standalone office parks that are a fixture in New Jersey. I would go as far as defining a modern office building as “a couch, a pool, a coffee shop, a tech-friendly shared community space in an apartment building, the beach or a train station.”
Unfortunately, New Jersey’s long-time emphasis on the development of suburban, standalone office parks now puts the state and its municipalities in a precarious situation as they fail to attract tenants and place strain on municipal budgets. These spaces were typically built with massive parking lots for commuters, lack many amenities beyond maybe a small gym or cafeteria and are often focused around cubicle work, something that many millennials detest.
Nevertheless, this doesn’t mean that New Jersey’s suburban offices are dead, far from it. Companies want to be in New Jersey because of the state’s proximity to major population centers and the overall talent available to employers. In solving the suburban office problem, property owners, planners, landlords and local government officials have been presented with a unique opportunity to reinvent these spaces and, in the process, redefine their towns.
In my primary area of work in the Upper Parkway submarket in northern Bergen County, I have observed firsthand how these spaces can be reimagined by investors, developers and towns to bring growth to both investment portfolios and communities. Forward looking property owners have been proactive in renovating and repositioning their properties in line with the desires of the modern tenant. This means installing a wide range of amenities from coffee bars to lounges to bicycle storage to patios and everything in between. Even more aggressive property owners have looked to radically reorient their spaces and create dynamic and up-to-date uses for them.
What would have been an obsolete, most likely vacant, 1970s-style office building, the former Mercedes Benz headquarters in Montvale, is potentially being converted to a mixed-use property with office, hotel, retail and residential space to appeal to modern companies and their employees. The developer of the DePiero’s Farm property has begun redevelopment of the property as a 120,000-square-foot Wegmans grocery store with an additional 65,000 square feet of retail. This property will also feature 7 acres of open space with winding paths and town officials are aiming for the property to function as a “down town” for Montvale. Another 140,000-square-foot office building being marketed as a sublease was sold to Memorial Sloan Kettering Cancer Center. This conversion showcases a unique repositioning of an asset that will bring numerous jobs into Montvale which would not have existed had the building been left as is. These projects are just a slice of what is happening in one town but highlight the wide range of adaptive reuse projects that property owners are pursuing to ensure they can extract the maximum value from their properties while making meaningful contributions to their communities.
Obviously, each project must be oriented for the best possible use for their surrounding community and developers, investors and towns should work closely to ensure that every project is well thought out. A collaborative working relationship is vital to the success of dynamic and community oriented projects such as these. There’s no reason to replace one underutilized property with another, newer, underutilized property.
Despite the challenges surrounding the market, personally, I think the overall office market in New Jersey is in a state of transition, not demise. Although new construction starts are down significantly, the market for existing office space continues to be strong. Over the last ten years in New Jersey, commercial real estate values are up 22 percent in car dependent areas, 43 percent in walkable suburban locations and 125 percent in highly walkable central business districts. In many markets, suburban offices present strong value-add propositions as much of it is not fully priced and smart owners can extract significant value from these spaces. With 5 million total square feet of Class A and B office space alone in the Upper Parkway submarket and 1 million of it scheduled to be torn down in the next few years, I see rents and property prices for well positioned buildings rising steadily in not just this market but across the state as similar reductions in available inventory take place.
New Jersey has always been a leading destination for business, both small and large. Through the timely and strategic redevelopment and adaptive reuse of existing office buildings, owners, investors and municipalities can continue to make New Jersey the preferred home for a diverse range of businesses.