Ed English sees positives in the 352,000-square-foot building at 307 Middletown-Lincroft Road in Middletown, which, for now, is occupied by Avaya.
The building, set on 65 acres with more than 1,500 parking spaces, is on the market for lease. Avaya, its current tenant, has said it will not renew its lease as it seeks to consolidate its work force.
"We have had interest from larger technology-heavy companies" and other companies seeking space for offices, said English, managing director of technology at Brentler Inc., a commercial real estate brokerage in Parsippany.
The building has space for a 68,000-square-foot data center, which includes heavy-duty air conditioning for computer systems and back-up power that will keep the building going during a power outage, English said. It's an attraction for a large company seeking to escape the higher rents of New York City and move across the Hudson to New Jersey. "The type of building this is, the tenant will either be an international or a national tenant," English said.
But it comes at a tough time for the commercial real estate market in New Jersey. The building in Middletown's Lincroft section joins other large properties on the market in Monmouth County, such as a building formerly leased by insurer CNA on Route 66 in Neptune, and Lucent Technologies' 2-million-square foot building on Crawfords Corner Road in Holmdel.
"I think the office market has generally stalled in 2008," said economist James W. Hughes, dean of the Edward J. Bloustein School of Planning and Public Policy at Rutgers University. At the core of it: New Jersey has lost about 10,000 jobs so far this year.
"We haven't been creating any new office jobs, so the action in the market is basically firms whose leases run out," Hughes said. "They either renew them in place or they make a move."
Rising vacancies
Vacancy rates among the office buildings in Monmouth and Ocean counties have risen over the past year. In Monmouth County, the vacancy rate was 12 percent in the first quarter of the year, flat from the previous quarter, according to Colliers Houston & Co. But between 2006 and the first half of 2007, the rate ranged between 8.9 percent and 9.8 percent, before rising in the third quarter to 11.3 percent, the report said.
In Ocean County, which has fewer office buildings than its northern neighbor, the vacancy rate was 12.4 percent in the first quarter, the same as the previous quarter. It began 2007 at 10.5 percent and rose every quarter last year, Colliers Houston reported.
Generally, there are not a lot of leases being signed as compared with last year, said Douglas R. Twyman, senior vice president at Colliers Houston in Franklin Township.
"From a tenant's perspective, just because of the nature of the economy, decisions are being made slowly or they are being put off, or tenants are doing stop-gap, or short renewals, in a lot of cases," he said. Landlords have been receptive to such deals in order to keep their tenants, he added.
"There is a lot of uncertainty," Twyman said. "Tenants can kind of see what the near-term future is, (but) they don't know what it is four or five years from now. They are hedging their bets primarily because of the economy."
The Shore is faring better than other office markets in Central Jersey. For instance, the Interstate 287 corridor, including the Brunswicks, Piscataway and Franklin, saw a vacancy rate of 21.5 percent in the first quarter, according to Colliers Houston. The Princeton area had a vacancy rate of 13.2 percent, the report said.
"Vacancy rates, maybe they are up slightly, but they are not up significantly like they are in other markets," said Suzanne Macnow, first vice president of brokerage services at C.B. Richard Ellis in East Brunswick.
A difference is the nature of the local market, brokers say. With the exception of a few large buildings, most of the office space in Monmouth and Ocean counties is taken up by small tenants with comparably small spaces that are 3,000 to 7,000 square feet. That is enough space for 12 to 28 employees.
"For every 20,000-square-foot requirement in the market, there are a dozen or so smaller requirements" of 5,000 to 7,000 square feet, said Colton Brown, vice president at GVA Williams NJ in Parsippany. "A lot of people are finding that they don't want to go over the Driscoll Bridge to Metropark and are finding opportunities to open their own shops in Monmouth County."
The Red Bank area is strong, said Macnow. The office complex off Exit 109 of the Garden State Parkway in Middletown, owned by Mack-Cali Realty Corp., is leased, she said. Buildings nearby on Schulz Drive and Half Mile Road have a small amount of vacancies.
A 141 W. Front St. in Red Bank, the most expensive multitenant office building in Monmouth County, at $36 per square foot, Macnow said she has four tenants occupying space there. "I have two leases out and I have four proposals on the building," Macnow said. "I have a flurry of activity."
Twyman agreed that there is more activity in smaller deals. He just completed a lease for 5,500 square feet at 106 Apple St. in Tinton Falls. "I don't see too many leases being signed much larger than that."
Demand for smaller space
Smaller buildings have less of a vacancy rate, said Ray Smith, owner of Stafford Smith Commercial Real Estate in Shrews-bury. He recently was leasing an medical office building in Ocean Township. "We got a half a dozen calls a day. There was a huge amount of demand for medical-office space in the area," Smith said.
Smith said he completed leasing of the Little Silver Professional Building, a 16,000-square-foot building on White Road. Judith Berg, owner of Judith Berg Associates, a college consulting firm, moved into the building about a month ago after her lease ran out in Ocean Township.
Berg said the landlord was willing to adjust the layout of her space.
"I was thinking about making the change, so I did look around a little bit," Berg said. "This space appealed to me because I like the idea of building it out to suit my needs and I like the location."
Macnow said demand is weaker in Wall and Eatontown. In Eatontown's Industrial Way area, there is new space and offices that were vacated by companies that downsized or relocated, she said. For instance, there is about 26,000 square feet available for sublease on Christopher Way. In Wall, there is lackluster demand for office space on parts of Route 34, she added.
As in Monmouth, much of the office space in Ocean County is also occupied by small tenants. About one-third is medical offices located around the county's four hospitals. Mark Kotzas, broker at Crossroads Realty in Toms River, said his office has completed about a half-dozen sales and leases for medical space so far this year.
"Bit of a glut"
In Toms River, there is "bit of a glut" of office space, Kotzas said. Buildings were constructed last year in anticipation of a cardiac surgery center at Community Medical Center in Toms River, he said. But the center never came to fruition.
"Two years ago, you would have been hard pressed to find 2,500 square feet of medical space in Toms River," he said. "We have had a 180-degree change in the office market here."
Markets in southern Ocean County, including Stafford, are strong, he said. "The growth in office space is going to be south of us here" in Toms River, Kotzas said.
A big question mark in the local office market is the effect of the relocation of Fort Monmouth to Aberdeen Proving Grounds in Maryland in 2011.
The exit of some defense contractors has already begun, Smith said.
"That certainly has depressed the market, yet a new element comes into the market in that we are finding that a lot of the stock brokers and . . . financial employees of New York City are now moving out to where they live and setting up their own shops," Smith said.
Twyman said he doesn't expect anything to happen over the next year or so. "Most of these firms are keeping a presence, and they're just trying to keep their options open and doing one-, two-year renewals," he said. "I wouldn't say for a second that the market is going to be decimated or wiped out."
One defense contractor, CACI International Inc., moved out of a building on Hope Road in Eatontown last year, but consolidated its offices into another building.
Spokeswoman Jody Brown said the company will keep a presence in the area after the Fort Monmouth move. "Our intensified concentration over the past four years in (information-technology) solutions for this region has paved the way for continued operations in the local New Jersey area," Brown said in a statement.
The Monmouth County market has been "pretty resilient" over time in the past with other situations, such as decision by Prudential Property & Casualty to leave Holmdel, Twyman said. That space is now being leased by Vonage Holdings Corp.
