Suburban Office Buildings: Solutions for Vacant, Obsolete Office Parks

Focus of New Jersey League of Municipalities Program. End Quote

Edison, NJ (1888PressRelease) July 24, 2013 - New Jersey's suburban office markets continue to struggle post-recession, and the latter isn't the only - or main cause. It's a matter of age and changing workforce requirements, and that was the topic of discussion at a New Jersey League of Municipalities Educational Foundation (NJLMEF) program titled "Reinventing New Jersey's Obsolete Suburban Office Campus." The event was held at the Edward J. Bloustein School of Planning and Public Policy in New Brunswick.

"In the decade of the 1980s, New Jersey's economy reinvented itself, changing from an aging manufacturing economy to a suburban-dominated, post-industrial, information-age economy," said James W. Hughes, dean of the Edward J. Bloustein School of Planning and Public Policy, prefacing the discussion. "By 1990, 80 percent of all the commercial office space ever built in New Jersey had gone up in the 1980s.

"Fast-forward to 2013-information technology and emerging business models are reshaping the landscape, and this is contributing to where people want to work and changes in the work spaces themselves," Hughes said. "The bottom line is that the suburban-centric, auto-dependent office corridors are out of fashion and may have run their course."

Leading a panel titled "Concerns, Imperatives and Future Strategies," Michael McGuinness, CEO of NAIOP New Jersey, the commercial real estate development association, noted that "What we heard from our earlier panel of leading developers is that they are adapting to the new demographics, the 80 million plus millennials."

What do obsolete properties look like? "Those built in the 1980s were more 'commodity' type buildings, multiple buildings with similar architectural design," said Sam Morreale, managing partner and CIO of Vision Equities. "They lacked amenities and were a relative cookie-cutter design."

"Most of the obsolete buildings are in 'fringe' locations and consist of extremely large floor plates with little access to outside public amenities such as shopping, public transportation, and dining," said Eugene Diaz, principal of Prism Capital Partners. "The reality is that the workforce in New Jersey has undergone a metamorphosis, moving from a lower-wage, back-office location in support of New York City, to a value-added, high-dollar output, high-wage environment responsible for generating corporate profits."

And that change continues to impact companies' locational and workplace requirements. More companies are seeking urban locations, and the suburban environment "needs to create a 'suburban/urban' environment for the employees," said Morreale. "People want diversity of food and meals with today's time flexibility, for example. People also want health clubs and other diversified uses."

Within the workplace environment itself, "the typical office building in the past featured cubicles," McGuinness noted. "The preference of the new workforce is to be more flexible and collaborative. People want a work/life balance, quality of life. They want the 'greening' of the building by daylighting."

"The structure of perimeter offices is a thing of the past," said Morreale. "Key decision-makers and executives are intermingled with managers and employees."

"New office space design is about collaboration, efficiency, outside light and community spaces," concurred Diaz. "New space is incorporated into its neighborhood, not isolated from it."

What's the solution? "Everyone - local officials, developers and state policy makers - must work together to make their communities compelling places for young folks to live and work," said McGuinness.

"Alternate uses are first on the list," said Diaz, citing Prism's The Parkway Lofts project. However, "there is a need to validate that they are key in-fill locations," Morreale noted. "Not every building is worth the capital required for revitalization. Some are better taken down or redeveloped for alternate uses," he agreed.

One example cited was Bayer's new East Coast headquarters in Whippany, N.J., an adaptive re-use of the former Alcatel-Lucent campus there. "It is an important example of how suburban offices can successfully be reborn," said Ronald F. Francioli, Mayor of Hanover, NJ. "It provides a solid example about how the public and private sectors can successfully collaborate, for the benefit of our communities and our tax base. There are many potential locations statewide where the same kind of rebirth can occur. We are, of course, very pleased that Hanover has benefited from the foresight required to reinvent New Jersey's suburban office market."

The 750,000-square-foot Bayer headquarters with 2,800 employees, "is a state-of-the-art, modern, low-cubicle environment," said Morreale, whose company redeveloped the site for Bayer. "It has open, informal, collaborative areas and glass conference rooms throughout. It makes great use of light, with open hallways that traverse light horizontally through floors."

The bottom line for owners of obsolete properties? "Hand back the keys," said Diaz. "In order to recycle these properties, risk-based capital needs to be employed, and that requires the basis of these properties to be reset to a point where a developer can take the risk to fundamentally alter their configuration.

"Age doesn't make real estate obsolete; the intended design does," he said. "Today, it is a lot less critical to have cheap space than it is to have important space."

"Developers and owners have to understand the demands of today's tenants and make the paradigm shift to an attractive, exciting workplace," Morreale concluded.

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