Corporations are weighing plans to spread their operations in the wake of the coronavirus outbreak, potentially seeking satellite offices in New Jersey in addition to their New York City headquarters.
By Joshua Burd
It seems office users are still willing to make decisions, but those decisions may be changing.
As Peter Bronsnick recalls, SJP Properties was recently working with a company that was preparing to consolidate its New York and New Jersey offices into a larger space in Manhattan. But with the coronavirus outbreak, the user reconsidered having its New Jersey-based employees commute across the Hudson River, while realizing that having multiple locations was not as detrimental to collaboration as it previously thought.
The tenant adjusted its strategy, opting to lease an additional space in the Metropark submarket.
“Metropark has always done well with these large-scale challenges — in this case, a tragedy,” said Bronsnick, SJP’s president, citing its location at the confluence of New Jersey’s labor base, along with mass transit and highway access. What’s more, he said SJP provided the firm with a location “that has redundant power and tremendous building infrastructure.”
It was a reminder that Garden State office landlords “do have quality assets with the infrastructure to be able to accommodate those kind of requirements,” he said. Those buildings could become increasingly vital in the wake of the COVID-19 pandemic, as companies look to de-densify to protect employee health and decentralize to ensure business continuity.
Bronsnick’s firm has engaged other tenants about their desire to spread out, amid growing confidence that workers can be at different locations but still collaborate effectively. Based on those discussions, that could lead to more of a hub-and-spoke model under which Manhattan remains the epicenter, but outer ring suburbs such as New Jersey play a larger role.
“They’re all happening on a case-by-case basis,” Bronsnick said, noting that New Jersey in recent weeks has seen inquiries for requirements ranging from 30,000 to 50,000 square feet.
“Everyone is going to be very thoughtful and prudent in their analysis of the well-being of the employee,” he added. “I think the employee now will have a lot of say in the location, and what we’re hearing is that human resources departments, heads of real estate and people in the executive suite are carefully evaluating the commutation patterns of their employee base and starting to evaluate access to that labor without it having to utilize mass transit in the way it traditionally did every day.”
He believes mass transit to satellite locations will remain a key factor for tenants that are mindful of business continuity and disaster recovery, he said. Meeting that demand in New Jersey is also a question of having buildings with strong IT and power infrastructure and landlords who are proactive in implementing Centers for Disease Control guidelines, who can assure tenants “that the building is going to operate regardless of what transpires.”
Those factors will be critically important to industries such as banking, technology and others.
“The idea that New Jersey has quality assets that can provide infrastructure is going to be really important in a post-COVID world, because tenants are going to rely on business continuity more than they ever have and I think they’re going to more mindful of it, too,” he said. “It wasn’t always as important to everybody as it will be now.”
It’s too early to say how or if such a decentralization trend would impact rental rates. But Bronsnick noted that office space in New Jersey is a third of the cost of space in Manhattan on an average per-square-foot basis, while suburban spaces also are typically more efficient.
That naturally allows companies to have more space per employee at a fraction of the cost.
“Whether it’s in New Jersey urban centers or New Jersey suburban markets, the question is going to be whether or not companies are willing to make long-term commitments in those locations,” Bronsnick said, touting the benefits: a safer and more comfortable commute for many, the ability to enjoy outdoor space and overall improved quality of life.
“You’ve just eliminated so many things that, in a normal environment, heads of real estate would love to solve for,” he said, later adding: “So I think pricing and that dynamic is going to be largely influenced by companies and the term with which they’re willing to commit to these spaces.”
“If they all come out and ask for two-year deals, that’s not only not healthy for the capital markets, because those deals are difficult to finance, but I would argue that they’re going to end up paying an unnecessary premium for the short term without a capital contribution from the landlord, because you need the term to justify the contribution.”
Still, Bronsnick was careful to note that tenants will still be discerning if they are exploring satellite locations in New Jersey. Suburban markets, even if they enjoy a resurgence or some level activity of here, won’t necessarily be accepted in their current form and will require “some creative place-making” in order to make them more desirable.
Yet he believes New Jersey still has an opportunity on several levels.
“It didn’t need to happen like this, but I think it’s a good thing not only for real estate, but I think it’s a good thing in the long run for just how we utilize all of the advantages of the metropolitan area,” Bronsnick said. “If you think about it, it just creates so much less strain on our mass transit systems, which were questionable at best pre-COVID.
“I think this gives us an opportunity to retool those services in a meaningful way, but also improve upon the quality of life for a state that really relies on the economic strength of New York City and a good portion of the population commuting to work there every day.”
He repeated a question he’s often made publicly.
“How nice would it be if we could maintain some of those folks from going across the river and having these jobs be New Jersey jobs?”