A warning shot for Monmouth offices

In fall 2005, the U.S. Department of Defense announced Fort Monmouth would close in September 2011 under its Base Realignment and Closure process. Most of the operations at the 1,126-acre base — which spans parts of Eatontown, Tinton Falls and Oceanport — will be relocated to Aberdeen Proving Ground, in Aberdeen, Md., according to the U.S. Army.

The base closure will result in the loss of 5,000 to 6,000 direct jobs at the fort between early 2010 and 2011, as well as between 12,000 and 20,000 defense contractor jobs at companies located off-base, according to the Fort Monmouth Economic Revitalization Planning Authority, in Eatontown.

“It’s had a chilling effect on the Monmouth County office market,” said Gary O’Sullivan, associate broker at the Somerset office of Colliers Houston & Co., a commercial real estate brokerage firm. Instead of five-year renewals or expansions, lease transactions in the submarket have primarily involved downsizings or one-year renewals, he said.

Most of the 1,700 defense contractors servicing Fort Monmouth have not decided whether they will relocate to Aberdeen, O’Sullivan said, but “there’s just a feeling that hangs over the market that these people are going to be leaving en masse in the next two to three years.”

Defense contractors supporting Fort Monmouth currently occupy 900,000 square feet in the 17 million-square-foot Monmouth County office submarket, which does not include space at the base itself, according to Colliers Houston. The submarket had a vacancy rate of 14.3 percent and average asking rents of $23.04 during the third quarter, the firm said.

“Fort Monmouth is definitely the biggest challenge” affecting the submarket, given the uncertainty surrounding the future of the base, said Douglas Twyman, a Colliers Houston senior vice president. “There’s so many different governing bodies that have input into that, and there’s no clear direction yet.”

The “double whammy” of the recession and the fort’s closure could put more strain on the submarket, said Jim Bollerman, owner and president of Red Bank-based Bollerman Development, which owns about 500,000 square feet of office space in Monmouth. “You can’t take a huge economic engine out of the marketplace without an impact on both occupancy and rental rates in the short term,” he said.

Bollerman said two of his tenants, EDS Information Services LLC and Janus, already have begun the relocation process, but others intend to reinvent themselves locally, and have made commitments to staying here: “They would continue to provide services to the military, but they would also be looking to expand their business plans to include more sales to the private sector.”

For example, in September, CACI International moved into a newly renovated 54,000-square-foot facility at 607 Industrial Way, in Eatontown, after outgrowing its former space in the borough. The Arlington, Va.-based technology services contractor will be doing research and development work for New Jersey-based clients that will be unaffected by the base closure, including the megabase comprising Fort Dix, McGuire Air Force Base and Naval Air Engineering Station Lakehurst, in Burlington and Ocean counties, and Picatinny Arsenal, in Morris County.

While CACI plans to continue to provide services to its Army clients, it is also looking to expand into homeland defense, cyber solutions, health care and alternative energy, said Lou Lifrieri, executive vice president, who is in charge of the BRAC transition for CACI. Up to 250 jobs will be kept in Monmouth, he said; at the same time, CACI opened a 60,000-square-foot facility in Aberdeen last December, relocating 200 employees and their programs from Fort Monmouth to the new site over the past year. About 80 percent of the company’s operations in Monmouth County — along with some 400 company positions and 500 subcontractor jobs — will be transferred to Maryland by the time the base closes, he said.

But few corporations supporting Fort Monmouth are likely to maintain operations in both Maryland and New Jersey following the base closure, Lifrieri said. “I would say that less than 20 percent of those companies — and that might be a lot — are considering a strategy like ours.”

Twyman doesn’t expect vacancies created by the base closure to be filled by another sector in the near term. Existing tenants don’t tend to occupy large amounts of space, with most space requirements involving 20,000 square feet or less. “I don’t see any large silver linings in the market,” he said.

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