Demand for industrial space is extremely high in Morris County.
offices drive commercial
By Christopher Reardon
For most people, thoughts of Morris County evoke images of bucolic parks, quant downtowns with shops and eateries and office buildings on highways. Industry does not usually come to mind. Yet there are more than 1,250 warehousing/manufacturing businesses in Morris County and today industrial properties are the hottest commodity in the commercial real estate sector.
There are 43 million square feet of owned and leased industrial properties in Morris County, with less than 3 percent vacancy, according to Tom Mallaney, first vice president at CBRE, with local offices in Florham Park.
“If you’re looking to rent space or buy a building at this time, your choices are very few,” he said. “Companies looking to acquire space need to make a business decision and move quickly. Regarding building sales, there are many properties that are not even hitting the street and they are under contract.”
Lori Zuck and Joe Komitor, partner and assistant vice president, respectively, at Lee & Associates, with local offices in Whippany, agree. In addition, as a result of the low vacancy rate, they have seen new rental rate increases at more than 20 percent within the last fiscal year, they said.
“We’re also seeing annual rent renewals hovering around 4 percent, versus the usual 3 to 3.5 percent,” added Komitor.
The rise of internet shopping also has contributed to the high demand for industrial space in Morris County, according to Tom Consiglio, principal at Resource Realty, with local offices in Parsippany.
“E-commerce is still top of the list for most industrial businesses,” he said.
This has created a demand for fulfillment and distribution space that is outpacing supply, he said, noting that in East Hanover a 312,000-square-foot distribution facility is under construction while an additional two buildings totaling 800,000 square feet are proposed for the Novartis Campus in town.
“It comes to a point where you take what you can get,” he said.
Meanwhile, the office space sector is a tale of two cities – or more accurately, two settings.
“One of the trends we’re seeing continue is the flight to quality remains very strong,” said Brian Decillis, managing director at Cushman & Wakefield, locally in Morristown.
Flight to quality is the migration of businesses from older commodity office buildings to newer or retrofitted buildings located in urban centers and offering greater amenities, such as conference facilities, food, fitness centers and even golf simulators.
“Over the last 10 years we’re dealing more with HR directors because there’s a war for talent and there is more focus on amenities,” said Bill Brown, executive director in Cushman & Wakefield’s Morristown office.
Decillis and Brown cited Gilead Pharmaceuticals, Embecta, Zelis and Cigna Express Scripts as companies that have moved into high-amenity buildings.
As a result, older office buildings set in suburban locations are suffering. In addition, with hybrid working seemingly here to stay, businesses need less space no matter where they are located.
“We’re seeing subleasing more than double in Northern New Jersey, which tells you the vacancy rate is still high,” said Nancy Glick, chief operating officer at Newmark Associates in Cedar Knolls.
“With some companies, employees only come in two or three days per week,” he said. “You advise someone in their decision for space, ‘You don’t need 100,000 square feet. You only need 30,000 square feet.’”
Added Consiglio, “As leases roll over, I think you’re going to see companies right-size.”
Multifamily buildings also are hot properties right now, experts said.
“The amount of (multifamily) development has risen over the past year,” Glick said. “These firms are targeting Northern New Jersey because towns have the infrastructure, such as a rail line into the city…Strip malls and larger office buildings are being retrofitted into the live-work-play model.”
Indeed, while some older office buildings and even older manufacturing facilities with low ceilings are being torn down for new construction, retrofitting or repurposing also is taking place.
“On the industrial side, there are so few properties for lease or sale, so land and functional obsolete properties are now being pursued for development and redevelopment purposes,” said Zuck of Lee & Associates.
In fact, an existing 2.4 million square feet of office space is slated to be repurposed in Morris County in the near future, according to Brown of Cushman & Wakefield.
Said Mallaney, “Some high-tech R&D-type of companies, with people doing bench work, for example, they don’t need high ceilings. Some office buildings are entertaining the idea of bringing in these types of clients.”
This is clearly a time of transition in the commercial real estate sector in Morris County.
“Business is all about staying out ahead of trends,” said Glick of Newmark Associates. “There’s always going to be demand but you’ll see a shift from one class of building to another.”