Ask some of the state’s commercial real estate experts and one of the first things they’ll tell you is that New Jersey’s current landscape of office buildings is outdated and aging.
A majority of the current inventory went up in the 1980s. These business parks — areas where offices and light industrial sites were built — were popular because they offered cheap rents.
But as the dynamics inside the workplace change, demand for more — and better — amenities in offices are on the rise here in New Jersey.
Experts say that will translate into a higher need for more Class A buildings, which are equipped with higher-end finishes, state of the art systems and many more amenities.
“Imagine something like a hub building in a college campus,” said Ross Chomik, managing partner of Vision Real Estate Partners, a real estate investment, development and asset management company that focuses on redeveloping properties.
Chomik said more developers are buying up buildings and adding in fitness centers, full-scale cafeterias to attract, and retain, more clients to their buildings.
And price is no object, even with the U.S. Federal Reserve raising interest rates, experts say.
“In this particular time, there’s a lot of money rolling around. And if it’s a well-positioned building, you’ll be able to find a buyer willing to take it on,” said Steven Spinweber, executive vice president at real estate company Sudler Companies.
One of the biggest deals listed in the state was executed by Mack-Cali Realty Corp., which bought 1.1 million square feet of office space — including several Class A buildings — for $368 million from RXR Realty LLC along the Route 24 corridor in Madison and Millburn.
Professional services firm JLL is currently watching deals like this one in the Garden State.
Managing director Jonathan Meisel said developers who take on older buildings, though, will have to make some decisions: raze older facilities and start from scratch or give them a facelift, which could save time and money.
“Take a look at 56 Livingston in Roseland, which is a great success,” Meisel said. “Mountain Development bought it and created a multi-tenanted building, adding in a fitness center and a monitored cafeteria.”
Meisel said we’ll see more older buildings in New Jersey being converted with higher end finishes and amenities in the future, bumping their Class B status up a grade.
“Marcus (Partners) also did that with 500 Plaza Drive in Secaucus. They took the buildings that were tired and amped them up.”
It’s even better if spaces are close to transit, a key factor for companies like Prologis, which concentrates mainly on industrial facilities around the New Jersey Turnpike. NJBiz listed the company as the largest commercial real estate developer in the state, owning or controlling 35 million in square footage.
“Most of our holdings run from exit 8A through to the Meadowlands,” Mark Shearer, senior vice president, said. “Typically, buildings that haven’t done well are ones that are not near some form of transit.”
But not every building has the potential to be converted.
“You’re going to see a lot of offices where owners haven’t put in services — and they’ll have to deal with that,” said Jacklene Chesler, executive managing director of Colliers International.
Chesler said her company, which has its New Jersey headquarters in Parsippany, had to sell an aging office building in that city for that very reason.
“Expect to see more square footage coming off the market.”
Those properties can still have a purpose, as developers look to mixed-use spaces with retail and multi-family dwellings, hotels or even industrial spaces for companies like Amazon, which Shearer said is a big real estate customer in New Jersey with at least half a dozen fulfillment centers.
That reduction in available office space could help with vacancy rates in the state, which have remained flat at about 25 percent, according to Meisel.
New Jersey, he said, is in a good position to attract skilled labor because there’s a good pipeline of college graduates, and because of its close proximity to Manhattan.
Out of all the deals that JLL is watching in the market, 30 percent are coming from the financial services, lifestyle and technology sectors.
But even with the all this potential to keep the market afloat, it doesn’t hurt to keep thinking about the future, according to Chomik.
“With a more younger workforce, you’ll have to think about bringing in even more amenities,” he said. “Developers will have to think about the exterior — bike trails, volleyball courts and other services like dry cleaning and car rides.”