The Newark Office Market Makes a Comeback
By Mike Anthony
The Newark, NJ office market, once abandoned by corporate America, is currently experiencing a resurgence. Recently, an increasing number of companies, both large and small, have decided to call Newark home.
While the Gateway Office Complex, the Penn Plaza buildings and other area Class A properties have always enjoyed strong tenancy, older, refurbished buildings, are now attracting attention and reeling in top tenants. In fact, Newark currently has one of the most stable office markets in the state. "There has been a significant drop in activity throughout the state," said Dudley Ryan, VP Sales for CB Richard Ellis Commercial Realtors, "however, we are still seeing positive strength in the Newark office market."
Among the office tenants recently coming to Newark are telecommunications company IDT, banking concern SBLI, brokerage firm Harris Capital Partners, Adready.com, a leading edge Internet advertising technology company and Rare Telephony (a subsidiary of publicly traded Voice Digital Communications, VDC: AMEX). Chase Bank is also due to open a branch office on Broad Street.
Ken Williams, partner at National Redevelopment, a Newark-based commercial real estate brokerage firm, said, "We have seen a significant increase in interest in both office and retail space in Newark’s Central Business District (CBD) over the last few years. Recently we have been in talks with Wall Street firms, publicly traded companies, major food service firms and entertainment companies about relocating to Newark." Williams feels this is only the beginning.
There are several reasons for the current strength in the Newark office market. Over the last several years Newark has made great strides in making its CBD more attractive to businesses. They have cleaned up the area, refurbished Military Park, put more police officers on the street and purchased new cars for the City Subway system. Through the Newark Downtown District, it also offers commercial property owners financial assistance in improving their property’s exterior appearance through its Façade Improvement Grant program. During the spring and summer months their are events such as lunchtime concerts at One Riverfront Plaza, PSE&G Plaza and the Newark Museum.
The addition of the Performing Arts Center, The Newark Bears/Eagle baseball stadium, the proposed Newark Arena and several top-flight restaurants is also playing a role in attracting commercial tenants.
Newark’s central location is also a major reason commercial tenants are looking to the city. Williams, whose company has completed transactions in 80 percent of the commercial buildings in Newark’s CBD, said, "Newark’s proximity to major roadways and New York City was one of the city’s strongest draws during Newark’s heyday, early in the 1900’s; now those same attributes will lead Newark to greatness once again."
According to Eugene Diaz of commercial real estate giant, Gale Wentworth, "If you have a sales force that serves customers throughout the country, being located in Newark is ideal. From a regional standpoint and national access, Newark can’t be beat." "New York," Diaz continued, "is the capital market of the world. You need access to the bankers and Wall Street, but you don’t want to locate your business there because it’s too expensive. Newark is a great cost effective alternative and you are only 10-12 minutes from Midtown Manhattan via New Jersey Transit and 20 minutes from Wall Street by the PATH."
Ryan, who has leased over a million square feet in Newark’s CBD, pointed out, "From here you can get anywhere. If you draw a box around Newark, to the North you have Rt. 280, to the East you have the New Jersey Turnpike, to the South you have Rt.78 and to the West you have the Garden State Parkway."
While New York is a major destination, it’s not the only center of commerce you can reach from Newark: Boston, Washington DC and Philadelphia are directly accessible from Newark via train or plane.
The high cost of New York office space has also been driving companies towards Newark. Class A office space rates in New York range are $75 to $80 per sq. ft., Jersey City rates range between $32 to $34 per sq. ft. Newark rates stand at approximately $30 sq. ft. (all rates are gross). All of these factors have made Newark one of the strongest office markets in New Jersey.
There is very little space available in Class A buildings where vacancy rates are in the low single digits. Consequently, much of the activity in the Newark office market is directed at older buildings. "What we are seeing now is the absorption of the old existing office space in Newark," Williams said. He stressed, however, that many of these buildings have undergone substantial renovation. "These buildings are being upgraded, they are being rewired and converted into smart buildings and they are being improved to meet the needs of today’s demanding office tenant," Williams explained.
The owners of 744 Broad St., 550 Broad St., 153 Halsey St. and others will build-out a space to meet a tenant’s requirements. The build-out can be as basic as carpet and paint or as upscale as marble, granite and glass. Building owners are willing to work with and accommodate a prospective tenant’s needs, as long as the deal makes economic sense.
While there are many positive signs in the Newark office market, all is not wine and roses. While Diaz acknowledges that the Newark office market is enjoying a consistent demand for space, he said it is not a volume demand. He believes there is enough demand to keep rents stable, but it is not comparable to volume demand seen in the Jersey City office market.
"Over the last few years, Jersey City has added 10 million sq. ft. of office space to its inventory; Newark hasn’t added any new space in a decade," Diaz said. "So, while Newark has experienced a solid demand for space, we haven’t seen the big volume additions in office space you want to see in a resurging city."
Newark, a more mature office market, has approximately 15 million sq. ft. in office space. The Jersey City market, with all of its recent construction activity, is just approaching that number. Diaz insisted, "For a market to remain healthy it must grow and nothing has been done to increase Newark’s inventory of office space. Based on Newark’s total office inventory, to grow the market two percent annually, it would have to add 40,000 sq. ft of new office space a year and Newark’s CBD cannot accommodate that kind of growth." He quickly added, "This is not to discount the Newark market. What has happened here has been miraculous, but there is still work to be done."
The problem, as Diaz sees it, is that Newark doesn’t have the available land stock in its CBD to support a new wave of office space construction. Williams doesn’t agree. He believes that as the existing office space inventory is absorbed, out of necessity, we will begin to see the construction of new office space. "At this moment," Williams insists, "there are several underutilized commercial sites that could be used for the construction of office space." Ryan believes there are enough CBD locations to accommodate five or six office buildings.
How will the proposed Newark Arena affect the office market, if and when it’s done? None of the experts interviewed felt that the arena alone would significantly boost interest in the Newark office market. "No one is going to say ‘hey a stadium is going up in Newark, I’m going to build a 20 floor office tower there’, but I do think it may help legitimize Newark as a full service location that has entertainment, restaurants and a lifestyle beyond the nine to five workday," Diaz said.
According to Williams, no one project is going to change things, however, when you look at it in conjunction with all of the other positive things happening in the city, it sends a message to potential developers and tenants that Newark is the place to be.
One non-office building project that should help legitimize downtown Newark as a full service place to work and live is the proposed Parkside Development project located across from Military Park and one block from the Performing Arts Center.
The $185 million project, which was spearheaded by the New Newark Foundation and will be build though Parkside Development Associates, a joint venture between Dranoff Properties, Downtown Works/Kravco Company and Universal Companies, will create a 24-hour mixed use complex that will create over 500 luxury loft apartments, 160,000 sq. ft. of prime retail space and 1,100 new parking spaces. The retail portion of the project will include a mixture of local, regional and national retailers as well as restaurants and entertainment. Construction is expected to begin in the spring of 2002 all construction should be complete by 2005.
As the economic slowdown drags on, the real estate market will continue to feel its effect as many companies remain in a ‘holding pattern.’ "I don’t think a lot will occur over the next 18 to 24 months," Ryan admits, "but, I think it will simply be a period of stabilization before the next growth phase. There will continue to be activity, but it won’t be directly tied to the office market." Ryan noted that there is a substantial amount of infrastructure work currently underway, like the rebuilding of roads to make getting in and out of the city easier. "It’s actually good that these things are happening while the market takes a breather," Ryan explained, "In the long run, these projects will bolster Newark’s image and allure."
As the economy improves, Williams believes Newark’s office market will reach a new high. "While I fully expect the current level of activity to continue," Williams said, "I believe the market will really pick-up as the economy improves and many companies that are sitting on the fence make the decision to locate their business operations right here in Newark."
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