Will 2020 Be A Year to Remember or Forget for the New Jersey Office Market?
By Jonathan Glick, executive vice president, Sheldon Gross Realty
Projecting future trends is always challenging, particularly when you’re attempting to do it during a global pandemic.
But to date, several promising signs suggest that New Jersey’s office market is moving in a positive direction —sluggishly and bumpily, perhaps — but in an encouraging direction nonetheless. Newly delivered projects can provide insight on where the Garden State’s office market is headed in terms of geography, design, functionality and usage. We offer several examples of 2020 deals that help illustrate these trends.
Sheldon Gross marketed and brokered the sale of a two-story 13,000-square-foot office building in Cranbury that featured an appealing location, just off exit 8A of the New Jersey Turnpike. The structure had been for sale and vacant for two years, but its out-of-state owner was willing to wait until a fair market offer materialized, which it did just prior to the COVID-19 outbreak.
But with the pandemic unleashed on the market, all communication and negotiations ceased. By May, the prospective purchaser had withdrawn from the transaction. It wasn’t until September that a new deal was negotiated with a buyer that intended to occupy most of the building, rather than sharing it with multiple tenants.
This somewhat delayed, yet favorable outcome was an important reminder that during challenging, unprecedented times, it’s inadvisable to overreact. The key is typically to take a long view, hold the price at a reasonable level and wait for the right buyer.
Another deal that we worked on that we believe reflects the future direction of the market involves premium office space — 50,000 square feet of it — in the very heart of Monmouth County. With the exception of the period from April through June, the number of inquiries we received regarding this location were comparable to pre-COVID levels. But while the number of inquiries has been similar, the profiles of the inquiring businesses are quite different. Many come from companies in the essential services sector, as well as from private schools.
In all cases, whether inquiries came from schools or essential services companies, there was a commitment to the creation of safe environments for employees. This included plans to expand per-employee square footage, increase private office space and enhance “flow” to prevent accidental or unintentional close contact between individuals while entering or exiting the building. In addition, the sizes of conference rooms and meeting areas were earmarked for increases.
These trends demonstrate that companies and organizations seeking new office spaces recognize and acknowledge their responsibilities in terms of health and safety. These users are doing everything they can to protect all those who will use their buildings.
A final case study centers on a New York City-based company with 100 employees. After purchasing this business, the new owner directed our firm to find an approximately 50,000-square-foot, Class A office building in New Jersey as near to Manhattan as possible. The owner wanted to purchase, rather than lease, and suggested he’d be comfortable with reducing initial costs by acquiring a building that was in distress.
Our initial approach involved outreach to all owners or brokers for Class A buildings of the specified size that were within a 40-minute commute of New York City. And after an exhaustive search, we found there were no appropriate buildings available for purchase.
But there were other options in the sublease market. These opportunities were extremely attractive financially, but the client was adamant about wanting a long-term solution. So we continued looking until the client’s New York City landlord lowered the rent to a 1960s level. The client punted his decision to 2021, when he suspected new purchase opportunities would present themselves as the pandemic faded away.
This case study demonstrates two significant points. First, businesses will adjust strategies in response to the type of difficult circumstances the pandemic has created. Second, they’re preparing for the global outbreak to end so they can successfully return to some semblance of normalcy.
From Cranbury to Eatontown to New York City — and a lot of places between and beyond — investment sales and leasing activity in office markets have been strong. It hasn’t an easy market to navigate, but it certainly hasn’t been impossible either, and buyers and sellers alike seem committed to overcoming the roadblocks that crop up.
We’ve needed to adjust and adapt on a consistent basis, but there is unquestionably reason for optimism in 2021. Hard times are neither comfortable nor enjoyable, but for those who don’t give up, significant long-term opportunities can still be found.