Despite large chunks of vacant space across New Jersey, a thirst for modern, higher-quality buildings is starting to drive new office and industrial construction in the state. And that activity includes some speculative development, which real estate professionals say is a positive step following the market's recent struggles.
"Products that people thought were class A are 15 or 20 years old, and the buildings have changed," said Clark Machemer, Rockefeller Group Development Corp.'s regional director for New Jersey. "And what people expect to have in those buildings has changed."
In May, Rockefeller opened BASF's new North American headquarters at the Green at Florham Park, one of the few office projects started and built during the recession. The firm has since garnered strong interest from other users, he said, leaving him "feeling good" that it could break ground on a new building by early next year.
About 1.2 million square feet of new, ground-up office construction is under way in northern and central New Jersey, according the brokerage firm Jones Lang LaSalle. That's more than double the amount of new office development at this time last year.
Slow job growth has kept the office market from making major gains, but existing users have sparked demand by seeking more modern spaces, said Jeff Hipschman, senior managing director for CB Richard Ellis, in New Jersey. While that doesn't bode well for older buildings, it has created momentum that is leading developers to start or consider new projects in New Jersey.
He said most of the current projects are supported by anchor tenants, such as the buildings for Panasonic Corp., in Newark, and Pearson Education, in Hoboken. And the LeFrak Organization is taking a similar approach, trying to attract a large user in order to start building a 1.25 million-square-foot office complex in Jersey City.
"That's the ideal situation, but there are entrepreneurial owners who are building on spec because they believe that new, quality product will attract users," Hipschman said. "And I think if you look at the buildings that have been built on spec, they have had decent success."
A speculative office project in Woodbridge is providing fruitful returns for Atlantic Realty and Development Corp. MetroTop Plaza II is about 70 percent leased since it opened late last year, boosted by a recent 87,000-square-foot deal with EisnerAmper.
Cushman & Wakefield broker Paul Giannone, who has handled leasing for the building, said its state-of-the-art amenities and proximity to transportation have helped drive its success. The 10-story tower has attracted several firms that sought to consolidate multiple offices, but were willing to pay for better space.
"I think with those types of qualities, combined with the location, one could be successful with new construction," Giannone said, "because even though people are driving down costs, they'll still pay a little bit more for quality if they're saving money in other areas."
New industrial construction is also under way. Through June, about 1.4 million square feet of warehouse and distribution space was being developed in northern and central New Jersey, according to the brokerage firm Cushman & Wakefield. But several other projects have since broken ground or are close to getting under way.
In Newark, the Morris Cos. broke ground last month on a 350,000-square-foot speculative warehouse in the city's Ironbound section. And in Edison, J.G. Petrucci Co. is building the Middlesex Logistics Center, a 571,000-square-foot industrial building.
"I would say that we're making great strides," Hipschman said, adding that the speculative development "is a very positive sign for the market."
Prologis, the industrial real estate giant, has turned its attention toward new projects after recently completing buildings in Secaucus and Elizabeth, said Jay Cornforth, president for the firm's east region. The developer is now hoping to develop a 900,000-square-foot facility in Jersey City, which could begin as soon as it finds a tenant.
But Cornforth said the firm is also looking at a speculative project in Port Reading, where it has plans for a building of at least 500,000 square feet. Like other industrial landlords, a rebound in global trade has given Prologis the confidence to consider such projects.
"Our main focus was just making sure that when the economy rebounded, that our sites were ready to be monetized," Cornforth said. "Every market has recovered to a different degree, so it's really submarket by submarket for us."
Machemer, whose firm is also building the new Jersey City distribution hub for Goya Foods, said interest in industrial space "has really rebounded strongly" among investors. That makes it easier for Rockefeller and other developers to keep rents lower and acquire tenants, a trend that will likely encourage new construction.
"We're optimistic about where things are going, but it's about being smart," he said.
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