This photo from November shows demolition crews at a large office building in Cranbury, which The Sudler Cos. is redeveloping as two new distribution facilities. — Courtesy: The Sudler Cos.
By Joshua Burd
Large vacancies have loomed over northern New Jersey’s office market in recent years, but a series of redevelopment and adaptive reuse projects are now helping to make a dent in the region’s stubbornly high availability rate.
New research by Newmark Grubb Knight Frank tracked more than 3.9 million square feet of projects that stand to repurpose vacant, obsolete office buildings in secondary locations and consequently remove them from the inventory of available space. In those cases, developers are razing the office buildings and replacing them with residential and industrial properties, seeking to tap into sectors that are better suited to those locations.
For a region whose vacancy has averaged more than 20 percent for the past five years, NGKF said that, for every 2 million square feet of office space in northern New Jersey that is torn down or converted to another use, availability declines by about one percentage point.
NGKF identified about nine such projects that are underway or have been completed since 2013, plus another four that have been proposed. For instance, the Sudler Cos. has razed a former 500,000-square-foot office building along the New Jersey Turnpike in Cranbury in order to build a new 757,500-square-foot industrial complex.
And in both Upper Saddle River and Morris Plains, Mack-Cali Realty Corp. has demolished former office buildings to make way for new high-end residential developments.
“Adaptive reuse projects such as these are recycling and repositioning land sites, and effectively ‘pruning’ the office inventory, as obsolete buildings are replaced by new office buildings or other land uses such as residential properties,” Mark Russo, NGKF’s research manager for New Jersey, wrote in the report. “This pruning is making the market on average newer and less suburban, which in turn is helping to lower availability.
“Over the long term, this trend should improve the overall quality of the inventory in New Jersey and result in greater potential for rent growth.”
In the process, developers are helping to feed the demand for sectors that have been growing or booming in recent years. Availability in the industrial market was 8.7 percent at the end of 2016, according to NGKF, while apartment vacancy in northern New Jersey is below 4 percent.
And it’s likely that the office buildings are in locations that are among the best in the state, even if those locations are no longer favored by corporate America.
“Because there was so much of that inventory of land 30 and 40 years ago, developers and owners picked off the best properties first,” said David Simson, NGKF vice chairman and chief operating officer of its New Jersey office. That includes “the closest ones to the highway accessibility, to the four-way interchange. Therefore those are the oldest buildings.”
Russo also noted that 71 percent of the office inventory in northern New Jersey was built prior to 1990, meaning they are not likely to meet the current tenant demand for modern workplaces with high ceilings, open floor plates, maximum window line exposure, ample parking and other features. Some developers have been able to rehabilitate vacant office buildings and repopulate them with tenants, but others are simply better-suited for conversion.
In those cases, successful conversion projects can not only help vacancy levels, but change the conversation in New Jersey.
“It certainly improves perception,” Russo said. “I think perception is probably worse than reality in New Jersey, especially for out-of-market folks looking at what the vacancy rate is in New Jersey, so it definitely helps there.”