The renovated lobby at 30 Knightsbridge Road in Piscataway, part of a sweeping, multimillion-dollar upgrade completed by Keystone Property Group. The firm acquired the four-building, 685,000-square-foot office complex in 2014 and has raised occupancy from around 80 percent to 94 percent since beginning its capital improvements. – Courtesy: CBRE
By Steve Lubetkin
“Sooner or later, everything old is new again,” wrote Stephen King in “The Colorado Kid.”
Brokers and developers squeezed for office options in the crowded northern New Jersey and New York metropolitan market are starting to expand their search back into the suburban office markets that, just a few years ago, were thought to be in danger of becoming ghost towns and albatrosses around the necks of suburban towns trying to redevelop themselves.
In Piscataway, part of the Interstate 287 South submarket, office rents are rising, partly because vacancy rates have tightened in surrounding submarkets like Woodbridge, Metropark and Edison, but also because outdated office inventory has left the market. In some cases, developers have invested in multimillion-dollar upgrades at older buildings, while others have razed the obsolete campuses and redeveloped the sites as industrial space.
“We call Piscataway a little bit of a sleeping giant,” said Jacklene Chesler, a senior managing director with Colliers International. “As the rents in the surrounding submarkets continue to rise, more companies are looking at this submarket for more favorable rental rates.”
It’s a dramatic turn of events for suburban office parks in New Jersey in less than a decade.
A 2012 Rutgers Regional Report, “Reinventing the New Jersey Economy: New Metropolitan and Regional Employment Dynamics,” by demographer James W. Hughes, then-dean of Rutgers University’s Edward J. Bloustein School of Planning and Public Policy, and Joseph J. Seneca, then a professor and economist at the Bloustein School, warned about the challenge of transforming and reimagining the state’s suburban office stock to adjust to the emerging employment and business dynamics.
Yet even Hughes, appearing at a NAIOP New Jersey public policy symposium last year, had turned optimistic about the revival of suburban offices.
“Suburbanization is having a resurgence, and the period of urban growth and suburban decline may have been a short-term blip,” he said. “Millennials who are entering their 30s and starting families are looking for walkable suburban environments, and if we can provide them, we should be in good shape.”
Developers like Rockefeller Group, Greek Development and Black Creek have converted outdated properties into large industrial developments because of Piscataway’s attractive proximity to major highways like I-287 and the New Jersey Turnpike, Chesler noted. That helps make the remaining office properties attractive plays for value-add investors, she said.
Long-term owners in the township have also helped to prune the office stock, seeking to tap into the surging demand for warehouse and distribution space. A joint venture of Sudler Cos. and GTJ REIT recently completed construction and interior design at a new ground-up industrial property at 2 Corporate Place, the former site of an outdated, 132,000-square-foot office building off I-287. The new 150,000-square-foot building now serves as both a distribution center and the North American headquarters for Colart, an international art supplier that has been a corporate tenant in Piscataway since the early 1980s.
Indeed, space availability in the submarket has declined dramatically from 26.5 percent in 2014 to 15.1 percent in 2018, according to Colliers figures. So far this year, availability has moved up just slightly, to about 16.6 percent.
As a result, asking rents are moving up, from $17.80 per square foot in 2014 to $19.17 for the first half of 2019, still highly competitive versus the $30 to $35 rents seen in nearby submarkets. Jack Callahan, an associate director who focuses on leasing office space for Colliers, said that presents building owners an opportunity for value-add development.
“They’re amenitizing the buildings,” he said. “The landlords that have invested capital into the buildings are seeing the lowest vacancy rates and the most activity at the highest rents.”
For almost a decade, strong demand for live-work-play opportunities in the state’s urban core markets close to New York City have driven the focus for office development in places like Newark, Hoboken and Jersey City. That has left experts warning about the challenge of reimagining the less-attractive suburban office parks into something younger workers would be willing to inhabit.
“There’s obviously a lot of outdated office product, built in the ’80s and with no amenities,” Callahan said. “There’s not as many large users anymore. Landlords are having to multitenant their buildings and they’re putting more people in a smaller space, so I think that all contributed to that high vacancy rate at the time.”
Part of the revival in the Piscataway office market seems to be coming from millennials — who may not like to hear that they are starting to resemble their parents. Seeking respite from living costs that are skyrocketing in New York and surrounding communities, they are looking for suburban opportunities as they enter their 30s and 40s.
“What’s happening is you kind of have a double-whammy happening to the millennials,” said Tom Sklow, vice president of development and leasing for Keystone Property Group, which recently completed a multimillion-dollar upgrade at a 685,000-square-foot, four-building office campus at 30 Knightsbridge Road in Piscataway. “They’re aging and know their costs are increasing, they have children, the children become school-age and they want to locate in areas where schools are good.”
That factor couples with increasing retirements among baby boomers, many of whom are no longer able to subsidize their millennial offspring’s city life, Sklow said.
“When you look at an area like Piscataway, it’s home to Rutgers, so you have an incredible employment base, a highly educated workforce and a very attractive cost of living,” he said. “And you’re within 30 minutes of going into Manhattan. If you want, you can get to Philadelphia in an hour. So you have great housing stock, great access to roads and great employment opportunities.”
The Conshohocken, Pennsylvania-based landlord has spearheaded a complete transformation of 30 Knightsbridge in order to make it attractive to companies looking outside the urban core. The firm recently tapped CBRE’s Jonathan Meisel and Doug Petrozinni as its leasing agents at the property, which is already home to companies such as AECOM, Aflac, Altice and Rutgers University.
“We created an amenity-based accessible building with a sophisticated infrastructure,” Sklow said, citing more than 40,000 square feet of amenity space, which includes a large café with indoor and outdoor seating, with a salad bar, hot food and themed menus. The firm has also created a game room with ping pong tables, chess sets and other offerings, while it has doubled the size of its fitness center.
A 200-seat auditorium is available to 30 Knightsbridge tenants, along with common area conference rooms and wireless internet connectivity throughout the complex to encourage collaboration in common spaces, Sklow said. Information screens throughout the campus provide traffic reports, weather and details about other local amenities, making the property “a very user-friendly building,” he said.
“If you were to walk the building, you would see that there’s a vibe to the building, a sense of community, you know, people not just working in their offices, but they’re all scattered throughout all the common areas, working on laptops, iPads, eating at the café or sitting outside,” Sklow said. “It has a vibe to it which is really ideal for attracting a younger workforce that wants that type of feel in a building, so we really bought the building out of the 20th century into the 21st century.”
The proof appears to be in the occupancy, which has risen from the 80 percent range when the redevelopment was started, to 94 percent currently, Sklow said.
Another submarket property being transformed is 371 Hoes Lane, acquired almost a year ago by Brandon Rolnick’s Greenway Properties LLC. Rolnick is still assembling the required permits for a complete makeover of the 139,000-square-foot, 8.9-acre property.
Rolnick describes the property as “an old, (19)80s Kushner building.” He hopes to redevelop the building for 21st century appeal, including open areas, a food court and other amenities like a game room with pool tables. He said traffic congestion in the New York-adjacent markets makes Piscataway an attractive choice for many companies seeking affordable back-office space.
“I think the ease and convenience of the location is driving some of the offices from the Northeast down,” he said. The nearby Rutgers University campuses in Piscataway and New Brunswick have made the location attractive for recruiting young workers, he added.
Colliers, which sold the property to Rolnick on the Ten-X online platform in 2018, is also working with Greenway on leasing up the building. Callahan said he hopes the redevelopment of the complex will push rents, currently in the $19-per-square-foot range, above $21.
The success of the Piscataway office market and other suburban redevelopments will also depend on availability of housing stock attractive to a new generation of suburban dwellers.