Macro changes drive profound change in Northern New Jersey’s office market
The Morris County—and Northern New Jersey—office market is in transition, driven by macro economic and demographic trends. While leasing activity has picked up, the impact on net absorption has been minimal. A key factor has been the suburbs vs. urban markets scenario – responding to the desire of many millennials to flee suburban areas for urban, transit oriented communities, a trend known as the new urbanism. Millennial workers are using their influence as the future of the workplace to drive change, especially in the TAMI (Technology, Advertising, Media, Information) industries. These tech and associated firms are opting to do whatever necessary to attract well educated millennials and an ever increasing number of companies have opted for urban locations offering the “live, work and play” environments that millennials seek.
Transportation hubs in areas such as Morristown, Summit/ Chatham, Montclair and others as well as larger cities like Newark, Iselin (Metropark) and Secaucus provide workers with the ability to quickly board a train or bus to work. This availability to mass-transit has been positive and stabilizing for many of these towns and some of the immediate surrounding municipalities.
Suburban office properties, many of them standing partially or fully vacant as a result, still provide opportunities for those investors/buyers willing and able to adapt that space. Potential uses can range from medical to healthcare, retail and even sometimes residential. Questions and risks remain with much of Northern New Jersey’s suburban office product as most was constructed in the 1980s and 1990’s. As such they are considered rather functionally obsolete for today’s office uses. Is a hi-tech infrastructure available? Is the parking sufficient? Local amenities? Might they be altered for medical use, general healthcare or even a retail use...are the aesthetics appropriate for residential? The answer may be as simple as, “Can I walk to a Starbucks?”
The bottom line is...These investment opportunities are there for the taking! I hold out that creative investors and developers have the insight and wherewithal to determine how to transform older office buildings and space into something desirable and useful. Even if the alternative is demolition followed by new ground-up construction of something other than an office building or park, there is a future!In terms of new office construction there is very little activity except for our existing base of corporations (which is substantial) looking to modernize their facilities. This is unlikely to change in the foreseeable future given the macro trends noted above. The additional fact that it is expensive to do business in New Jersey compared to many other markets. As they say, “the world is flat” and it is not unusual for companies to look elsewhere. Fortunately, New Jersey has an extraordinarily educated and diverse workforce. For companies that stay in the Garden State, they increasingly turn to urban locations and/or properties that are located near mass transit, allowing millennials who do not drive easy access to work. This signals a long-term change that is here to stay for our state’s office market.
W. Joshua Levering, SIOR is senior vice president of NAI James E. Hanson.