Real Estate is a finite universe, hence the old axiom, “they aren’t making any more of it”. In the office world of New Jersey, we have almost a finite universe of office buildings, most of which were constructed almost 50 years ago.
Over the decades, Landlords have fought the good fight to keep these aging structures relevant to New Jersey businesses. We have seen the common area lobbies, corridors and rest rooms retrofitted with newer brighter fixtures and more modern style flooring, walls and ceilings. As tenants have come and gone over the years many of the interior offices have been retrofitted time and time again with the latest in office designs to accommodate an ever-evolving series of new office styles, colors and fabrics.
In truth, however, the majority of these retrofits were mostly cosmetic in nature. After all, the technology used to construct these office properties is from a time before there was an internet or even digital calculators. Most still rely on perimeter baseboard electric heating, with old style HVAC systems.
Here we are in 2023, and we are seeing that the majority of New Jersey business owners have finally come to grips with work from home and hybrid work schedules. Those that have returned to the office, businesses like doctors, lawyers and financial service firms seem to be back up to speed. Many other industries, like the pharmaceutical companies, are still struggling to convince their workers to come back full time. Many other business owners have decided to work from home forever, giving up on the office permanently.
How is all this impacting the office property owners in the Garden State? The good news is that multi-tenant office property owners have been able to keep the majority of their tenants, albeit with shorter lease term extensions. In the cases where this is not possible, many Landlords have fortunately been able to find replacement tenants. Indeed, the availability of small Class B office space has been tightening. We see, for the moment at least, a kind of homeostasis where the Class B multi-tenant Landlords seem to be holding on tightly.
Ironically, Class A office properties seem to be feeling the impact of vacancies a bit harder. Most Class A office tenants are in long term leases with large blocks of space. These companies have a far greater amount of surplus space due to the impact of hybrid work schedules and work from home, reluctantly forcing many to put large blocks on the sublease market. This has led to a great opportunity for many Class B tenants to upgrade to a Class A property at a bargain price, or as we like to call it, the flight to quality.
As all this sorts out, it should be noted that we see some dark forces on the horizon. Out in San Francisco there are large company layoffs in the tech industry which may spread to other industries and regions. Here in New Jersey, it is uncertain how the rising cost of mortgage interest will impact the profits of property Landlords.
While it may be too soon to know the direction of the market with any certainty, I am never the less optimistic about New Jersey’s office future. The good news as I see it is that companies are finally coming to grips with their new realities.
If all this seems like it is too much for you to handle, why not give us a call to confidentially explore your space options and to find out why, at Dickstein Real Estate Services, OUR DIFFERENCE IS YOUR ADVANTAGE®.
Categorised in: Real Estate Markets