Recession-weary market showing signs of promise
Recession-weary market showing signs of promise
Parsippany Mayor James Barberio has seen his share of dark days for the office market in his sprawling town — but he’s also seen it bounce back on more than one occasion.
He took office in 2010, when there were seven vacant buildings around Jefferson Road, driven in part by downsizing by the pharmaceutical giant Pfizer. And he was there in 2013 when Realogy Corp. left its headquarters off Route 10 for a new home in Madison.
Today, however, all but one of the buildings around Jefferson Road have been filled by new tenants such as Pinnacle Foods and PNY Technologies. And the Realogy building has found a new lease on life, thanks to roofing manufacturer GAF, which acquired and renovated the 330,000-square-foot building before moving there early this year.
“There’s a lot of good things happening in Parsippany,” Barberio said. “I’ve got to tell you — every time I think about economic development, I get excited about it.”
You might expect to hear that from a mayor, but he’s certainly not alone in seeing the upside in this Morris County township. Despite being among the hardest-hit submarkets by the downturn — with effects that still linger today — experts say Parsippany is showing new signs of life in the commercial real estate market.
Those signs are coming via new interest from major corporate tenants, along with investment from some of New Jersey’s most savvy developers. And they all point to what put Parsippany on the map some 30 years ago: its location at the nexus of several major highways and its proximity to a talented workforce.
“We still believe in the submarket as a corporate headquarters location,” said Paul Teti, a principal of Normandy Real Estate Partners. “I still think it’s a big tenant market, so if you can create today’s workplace environment … we think you can still be very successful in Parsippany.”
The Morristown-based firm served as the project manager for GAF, which made significant upgrades to the former Realogy site in order to move its headquarters from Wayne. And Normandy is now marketing a nearly 126,000-square-foot building at 10 Sylvan Way to full-building users, with plans to strip the property to its steel frame and modernize it for a new tenant.
As part of that strategy, Teti said Normandy is banking on the appeal of its location — the site is surrounded by Interstate 287, Route 10 and Route 202, and it sits adjacent to the headquarters of other major companies such as Wyndham Worldwide and Avis.
That type of access has helped drive other recent momentum for the town. UPS is seeking approvals to build a 200,000-square-foot building on Interpace Parkway, just off I-80 and Route 202, where it would house some 700 employees from its technology support group now based in Wayne.
And brokers point to a positive first quarter for the submarket. That includes the 71,500-square-foot lease signed at 300 Kimball Drive by Langan Engineering, which plans to relocate its headquarters from Elmwood Park.
Such deals led to 286,000 square feet of positive absorption in the Parsippany submarket in Q1, according to JLL, representing the highest total for any submarket during the quarter. It may be at the expense of other municipalities, but it is good news nonetheless for a town that has taken its lumps.
“(It’s) what we call musical chairs — a lot of moving around — but as of late there’s been a couple success stories that have led to nice positive absorption for this quarter,” said Jon Meisel, a Parsippany-based managing director with JLL. He added: “Things ebb and flow quarter by quarter, but we see some other deals on the horizon that are coming into Parsippany because they have choices.”
It’s not all good news for the 24-square-mile township, which has seen vacancy in leasable office space nearly double since 2006. Through the first quarter, overall vacancy for Parsippany was nearly 30 percent; local officials, however, argue that number is closer to 20 percent when you include some two dozen owner-occupied buildings, which house of many of the township’s most prominent anchor tenants.
Meantime, New York Life Insurance Co. is slated to vacate nearly 251,000 square feet at 169 Lackawanna Ave. in favor of space in Jersey City or another location.
But there are still signs of rising demand in the near future, according to Matt McDonough of the brokerage firm Transwestern. He pointed to modest job gains, saying it no longer benefits tenants to hunker down in their existing space, as it had it recent years — meaning they’re likely to become more active about upgrading.
So for landlords, he said, “the message is, do the work and the tenants will step up.”
Transwestern has seen that formula work at 300 Kimball Drive, where it oversaw a major capital improvement project for the landlord in 2013. Since then, the firm has leased about 60 percent of the 400,000-square-foot building, and it’s in talks with another tenant from outside Parsippany that could take another 87,000 square feet.
“I think it demonstrates completely what’s going on in the market, and because of it, landlords have realized what they have to do,” said McDonough, a managing director with the firm. “Tenants will lease quality space in quality buildings. … The vast majority of the building stock here is 20, 30 years old — it’s getting tired and landlords have to reinvest.”
For the last two leases at 300 Kimball, he said, the landlord has come away with a higher rental rate than it attained in the prior deal. The firm has raised its asking price again, he said, a sign of confidence in the market for top-flight buildings.
“When we look back on this, we’ll see 2014 as the inflection point in the cycle,” McDonough said.
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Researchers at JLL noted late last month that in the first quarter, Class A office vacancy in northern New Jersey decreased for the first time in more than two years.
And it was the Parsippany submarket that helped drive that activity.
The firm notes the submarket had 286,000 square feet of positive absorption for Class A space during Q1. That was the highest total for any submarket in the state, helping drive the 114,561 square feet of overall absorption for Class A space in North Jersey.
“So it was almost like everyone is kind of counting out the Parsippany submarket, your traditional suburban type of market,” said Stephen Jenco, JLL’s director of suburban Tri-State research. “But we actually saw that market contribute to that turnaround for northern New Jersey, which I think was an encouraging sign.”
At 10 Sylvan Way in Parsippany, Normandy Real Estate Partners is adopting a strategy it has executed well in the past, but with one exception.
The firm acquired the three-story property as a vacant building and now plans to redevelop it. But rather than start the construction on spec and lease it on a piecemeal basis, Normandy has prepared new designs and construction drawings that it has worked into a sleek marketing video on a website, 10sylvanway.com.
Principal Paul Teti said that’s because the firm is pitching the nearly 126,000-square-foot property to full-building users, those that may have already decided they want to be in a headquarters hub like Parsippany. So the video, which lasts nearly three minutes, shows the property’s transformation from the existing structure to a stripped-down steel frame to a reconstructed, state-of-the art office building.
“I think it gives you a really good idea of the vision that we have and the environment that we’re trying to create,” Teti said, later adding: “Our job is to make sure that if there is someone that’s willing to be in Parsippany, that we provide the right environment. And that’s why we took so much time create this video and create these plans and really give someone a clear picture of what we think is the right corporate environment.”