To see Newark rebirth, look upAs big names plan high rises in city, real estate firms see rising demand
For years, when Miles Berger brought prospective tenants to his Newark office buildings, he has taken them to the windows to show off views of the Empire State Building,
the former World Trade Center and the new tower rising in its place. But in recent months, he's been able to showcase another landmark much closer to home. "When we look out and we see the Panasonic building just two blocks away, there's no better sign to people that this is a city on the move, that it has vitality," said Berger, CEO of the Berger Organization. "And that a company like Panasonic has the faith to move its headquarters to Newark is a tremendous selling point for all office buildings and Realtors."
The Newark office market has been strengthened over the past two years by a series of high-profile announcements and milestones, including Panasonic's decision to move its North American headquarters here. But the market also faces some uncertainties, especially with Prudential Financial's plan to vacate nearly 1 million square feet of downtown space and build a new office tower nearby.
With a vacancy rate of about 18 percent, Newark is among the strongest submarkets in the state, according to the brokerage firm Cushman & Wakefield. New leasing activity was tepid through the first half of the year, with 33,540 square feet of negative absorption, but insiders say future development has created buzz in a marketplace that hasn't seen new office construction since 1991.
"Development is really the story of Newark right now," said Bryn M. Cinque, an executive managing director with Colliers International's New Jersey operations. He said a new property like the Panasonic building, along with several other in-progress projects, could help "turn around the image of Newark, and have it become a more acceptable location for some of the Jersey City or New York tenants."
For the city's real estate community, a new tenant like Panasonic has the potential to bring in companies that do business with the electronics giant, or at least showcase the city to its visitors. Brian Banaszynski, managing director of Advance Realty — which owns One Gateway Center — said once the building opens, "we're hopeful that will help sort of increase the fundamentals in the submarket. … It could have a good multiplier effect."
The city's office market scored another victory last month, when Public Service Enterprise Group announced its lease renewal at 80 Park Plaza, where it has been since 1978. David Stifelman, an executive director with Cushman & Wakefield, said it was "huge for Newark" that the utility operator chose to stay after considering other cities.
But another Brick City mainstay, Prudential, has raised doubts and sparked debate about the market's immediate future. The insurance giant has said it plans to move in two years to at least one new office tower near Military Park, emptying the 900,000 square feet it occupies at three buildings in the city's four-tower Gateway complex.
Brokers and developers say the greatest benefits to the market come from keeping Prudential in the city and revitalizing the area around the park. Berger, who owns several nearby buildings, said "there is no single project more significant to the city" than the proposed Prudential tower, which could help a long-suffering section of Broad Street.
But Stifelman, who also cited the benefits, said there is a flip side: "It will probably devastate" Gateway 2, where Prudential leases most of its space, along with a portion of Gateway 3. In order to attract new tenants, he said, the owners will likely "need a tremendous amount of capital infusion" to put the buildings on par with properties in Jersey City: "Major corporations today aren't going to settle for inferior product, even though it's there at half the price," he said. Owners for other Gateway towers have not responded to requests for comment.
The city trails only the Hudson waterfront in size, with about 13.5 million square feet of inventory, according to Cushman & Wakefield's data. But only 12 of the market's 57 buildings are considered to be class A.
There could be more construction in the future, according to Lyneir Richardson, CEO of Brick City Development Corp. He said planners have identified seven surface parking lots suitable for new office towers, if the opportunity comes along, but "the challenge is finding an anchor tenant, finding the bigger users."
It's also important for the city to market existing space, Richardson said, especially since not every firm needs large offices, or has the 18 to 24 months to spare for new construction. And rents in Newark remain lower than in Jersey City and Manhattan.
"Maybe it's not as sexy of a marketing effort, but for companies that are reality-based, it's actually a compelling opportunity," Richardson said.
New Jersey's largest city could still lose at least one prominent tenant. Executives at IDT Corp., which leases about 75,000 square feet at 550 Broad St., have publicly said the company has explored moving out; the telecommunications firm is locked in a dispute with its landlord, Heritage Capital Group, over its lease terms and unpaid rent.
Still, Berger said interest at several of his Newark office buildings was "brisk," pointing to activity from newer types of tenants, like charter schools. The main challenges to growing the city's office market remain unchanged, he said: Keep costs down, attract large companies — and improve Newark's image in the eyes of outsiders.
"We do confront that from time to time," he said. "But certainly the city that we're operating in today is a hundred percent improved over the one a decade ago."
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