Jones Lang LaSalle
Builders willing to speculate in NJ: Respond to demand for high-end offices along Princeton's Route 1, elsewhere
By Tina Traster
Published on January 16, 2006
Pent-up demand for Class A office space and state-of-the-art industrial facilities in suburban New Jersey has stimulated a mini-boom of speculative development that has not been seen in the state for at least five years. Developers say dried-up inventory for premier space in top markets, healthier corporate balance sheets, and new standards for productivity and efficiency justify building without guarantees from tenants. But developers, sobered by rising construction costs and tougher financing options, are building cautiously.
Great expectations
A case in point is the Gale Co., which is now constructing a five-floor, 175,000-square-foot Class A office building in a Parsippany office park, where it completed two office buildings in 2001. The new building, 100 Kimball Drive, is due on the market in October 2006 and "has strong interest but no signed deals," says Mark Yeager, president of the Florham Park-based company.
Mr. Yeager expects the building, with an average asking rent of $34 per square foot, to be 100% leased by mid-2007. However, the company will gauge the success of the building before it begins spec development on the fourth and final building in the 110-acre business park.
Even though office vacancy rates are 19% statewide, speculative developers are counting on vacancy rates of under 10% for new Class A buildings in desirable markets such as Princeton's Route 1 corridor, Morris/Essex counties along the Route 24 corridor, and even in Parsippany, where vacancy rates are closer to the state average. Developers do not see similar opportunities along the waterfront, in the Route 78 corridor or even in Bergen County.
What's needed
The developers say there is demand from Fortune 100 companies in a variety of fields that want modern, fiber-wired, open-floor plans and secure headquarters with amenities such as cafeterias and health clubs. They want buildings located in markets with access to mass transit, highways and skilled workers.
"It's the `flight to quality' syndrome for major companies," says Geoffrey Schubert, senior vice president at CB Richard Ellis in Saddle Brook. "Nearly a third of the 30 million square feet of office space available is in 20- or 30-year-old buildings that have been on the market for 24 to 30 months. This is a prime time to build Class A space."
In Princeton, four spec buildings totaling 800,000 square feet are under way. These include Reckson Associates' University Square, a five-story 315,000-square-foot building on Route 1, and the Patrinely Group's just-completed 1100 Campus Road, a five-story 167,000-square-foot office tower, in Princeton's Forrestal Center on Route 1.
"I'm not expecting miracles, but a slowdown in absorption rates and a healthier economy suggest the downturn is behind us," says Tom Bermingham, senior vice president of the Patrinely Group, a Houston-based developer.
Not every developer, however, is ready to put the shovel in the dirt.
"The good news is that there's not a lot of quality space, but we believe that corporate America is still hesitant. So we're waiting until the market takes a stronger turn," says Peter Eppie, executive vice president at SJP Properties in Parsippany, which has approval to develop 2.4 million square feet of Class A office space in Morris County.
Builders willing to speculate in NJ: Respond to demand for high-end offices along Princeton's Route 1, elsewhere
By Tina Traster
Published on January 16, 2006
Pent-up demand for Class A office space and state-of-the-art industrial facilities in suburban New Jersey has stimulated a mini-boom of speculative development that has not been seen in the state for at least five years. Developers say dried-up inventory for premier space in top markets, healthier corporate balance sheets, and new standards for productivity and efficiency justify building without guarantees from tenants. But developers, sobered by rising construction costs and tougher financing options, are building cautiously.
Great expectations
A case in point is the Gale Co., which is now constructing a five-floor, 175,000-square-foot Class A office building in a Parsippany office park, where it completed two office buildings in 2001. The new building, 100 Kimball Drive, is due on the market in October 2006 and "has strong interest but no signed deals," says Mark Yeager, president of the Florham Park-based company.
Mr. Yeager expects the building, with an average asking rent of $34 per square foot, to be 100% leased by mid-2007. However, the company will gauge the success of the building before it begins spec development on the fourth and final building in the 110-acre business park.
Even though office vacancy rates are 19% statewide, speculative developers are counting on vacancy rates of under 10% for new Class A buildings in desirable markets such as Princeton's Route 1 corridor, Morris/Essex counties along the Route 24 corridor, and even in Parsippany, where vacancy rates are closer to the state average. Developers do not see similar opportunities along the waterfront, in the Route 78 corridor or even in Bergen County.
What's needed
The developers say there is demand from Fortune 100 companies in a variety of fields that want modern, fiber-wired, open-floor plans and secure headquarters with amenities such as cafeterias and health clubs. They want buildings located in markets with access to mass transit, highways and skilled workers.
"It's the `flight to quality' syndrome for major companies," says Geoffrey Schubert, senior vice president at CB Richard Ellis in Saddle Brook. "Nearly a third of the 30 million square feet of office space available is in 20- or 30-year-old buildings that have been on the market for 24 to 30 months. This is a prime time to build Class A space."
In Princeton, four spec buildings totaling 800,000 square feet are under way. These include Reckson Associates' University Square, a five-story 315,000-square-foot building on Route 1, and the Patrinely Group's just-completed 1100 Campus Road, a five-story 167,000-square-foot office tower, in Princeton's Forrestal Center on Route 1.
"I'm not expecting miracles, but a slowdown in absorption rates and a healthier economy suggest the downturn is behind us," says Tom Bermingham, senior vice president of the Patrinely Group, a Houston-based developer.
Not every developer, however, is ready to put the shovel in the dirt.
"The good news is that there's not a lot of quality space, but we believe that corporate America is still hesitant. So we're waiting until the market takes a stronger turn," says Peter Eppie, executive vice president at SJP Properties in Parsippany, which has approval to develop 2.4 million square feet of Class A office space in Morris County.
posted by Jones Lang LaSalle NJ News Blog at 10:42 AM
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