The Star-Ledger, New Jersey’s largest newspaper, recently published an article that examines the direction of office demand in Northern and Central New Jersey. It provides some takeaways for office demand trends in other suburban markets. Since office properties are a large component of CMBS loans, the trends are quite relevant.
The article begins by noting three major suburban headquarter office properties that are vacant or soon to be: the 1-million sf/500-acre former Merck headquarters in Readington, N.J. off I-78, the 2-million sf/500-acre former Bell Labs campus in Holmdel, N.J. off the Garden State Parkway and the soon-to-be vacant Hoffman-LaRoche 127-acre U.S. headquarters, located on Route 3 in Nutley, N.J. with approximately 2 million square feet of space. Overall vacancy in the Northern/Central N.J. market is 25%.
The article suggests these properties will need to be repurposed as large suburban campuses are “dinosaurs from the 1980s.” Their obsolescence has been driven by companies gravitating toward more compact offices with collaborative workspaces in downtown locations and away from large, cubicle-heavy spaces common in New Jersey’s suburbs.
When locating offices, decision makers are considering the desires of Millenials. They don’t want to travel far distances in cars to work in plain vanilla office buildings. They want to work near where they live, which is typically the N.J. transit cities of Hoboken or Jersey City or other hip transit-oriented communities like Morristown, Summit and Montclair.
“The redevelopment of the Hoffman-LaRoche facility will likely be very successful, as there is very strong, retail, office and residential demand along the Route 3 corridor. Busses and trains in the vicinity of the complex can serve all users,” noted Michael D. Sneden, Executive Vice President at ValueXpress. “The other two sites will be more difficult to redevelop, as they don’t have the transportation and services desired by the up-and-coming workforce anchored by Millenials.”