Russo Development and Onyx Equities have acquired 62 acres at the Novartis Corp. headquarters campus in East Hanover and are now planning to redevelop the site as a two-building, 826,800-square-foot industrial complex, as depicted in this rendering. — Rendering by KSS Architects/Courtesy: Courtesy: Russo/Onyx
By Joshua Burd
Industrial builders have looked increasingly westward in New Jersey for new development sites, as they grapple with a scarcity of land in the state’s better-known submarkets.
According to Ed Russo, tenants have also grown comfortable with locations such as Morris County, western Essex County and other points along the region’s secondary highways.
“Not every use needs to be right on the Turnpike corridor,” said Russo, the CEO of Russo Development. “Some of these more infill uses, where they’re more local distribution and not regional distribution, they prefer to be in this market.”
Russo and its partner, Onyx Equities, are banking on that demand after securing a coveted development site in East Hanover. The firms announced in mid-December that they had acquired 62 acres at the well-known Novartis Corp. campus along Route 10, with plans to develop a two-building, 826,800-square-foot logistics complex. Currently home to about 900,000 square feet of vacant office space, the parcel represents nearly a third of the pharmaceutical giant’s U.S. headquarters property, but is now providing an opportunity for both the developers and prospective tenants in an exceedingly tight industrial market.
Terms of the sale were not disclosed.
“We are excited to redevelop a portion of one of northern New Jersey’s premier sites into a first-class industrial project,” Russo said when the firms announced the deal. “We appreciate the opportunity to work with East Hanover Township and Novartis as the company transforms its East Hanover campus to a more flexible and collaborative workplace design.”
The property, located at the Ridgedale Avenue intersection, is not your typical industrial parcel. Russo noted that the site came with integrated utilities, security and other infrastructure, requiring the developers to craft a plan for separating their portion from the balance of the campus.
Aesthetics will also be important, he said, given that Novartis will remain at the location despite shrinking its physical footprint.
“The fact that they’re going to be next door for a long time and have so many employees there, they wanted to make sure they were picking a buyer that would commit to building something beyond just the typical box, something a little bit more architectural,” Russo said. “And I think we were able to make them comfortable that we would build a nicer product.”
Morris County is home to many older light industrial and flex buildings, but the East Hanover project is among several that could help update the region’s stock of distribution space. According to JLL, tenants in the county are typically servicing the New Jersey metro area and have businesses driven by local demand, but is now under consideration for regional tenant requirements, given the tight market conditions elsewhere.
That will likely bring down what was a comparatively high vacancy rate of 6.9 percent, as of July 2021, in the years ahead.
“Given the statewide space constraints, particularly for large blocks of space, Morris County’s vacancy rate is expected to come in line with the rest of the state over the next 12 months, as some of its large availabilities lease up,” JLL researchers wrote in their midyear Northeast Industrial Outlook report. “Over the longer term, Morris County’s greater land availability compared to other New Jersey submarkets makes it a prime breeding ground for future development. This, combined with persistent demand for modern logistics space, will make the county one of the state’s top growth markets in the years to come.”
As Russo noted, infill locations such as Morris County also provide a dense population and deep pool of both blue- and white-collar workers. He pointed to Tiffany Co.’s decision around two decades ago to open a fulfillment center in the Whippany section of Hanover, about three miles from the Novartis site, as an example of how the area could appeal to high-end industrial users.
“And from what we’ve seen with tenants that are floating around in the market right now and have been recently, there are more customers like them that will give this location a hard look,” he said, adding that the Novartis site is minutes from interstates 287 and 280.
Site work is slated to begin early this year and will come in a time of increased sensitivity to large industrial developments and the traffic that they typically bring. Russo said the developers plan to address those concerns thanks in part to the site’s lower-than-average coverage ratio: While an industrial building can typically cover 45 to 50 percent of a property, the zoning for the Novartis site allows for only 30 percent. That will allow the builders to maintain substantial open space buffers around the site, he said, particularly along Ridgedale Avenue where more homes are located.
The developers also plan to limit truck access to Route 10.
“Whenever you’re building in a location where you’ve got a mix of uses around you — and this is clearly one of those sites … we’re extremely sensitive to making sure we don’t create noise, traffic or other negative impacts,” Russo said.