New Jersey’s Obsolete Office Buildings Find New Life as Multifamily and Industrial Properties

More Must Be Done to Realign Lackluster Demand with the Abundance of Largely Vacant Properties

According to Mateusz Wnek at CoStar Analytics, "Elevated office vacancies across New Jersey have pushed owners and developers to reposition properties originally envisioned for large-scale back-office work. With demolition and redevelopment outpacing new construction in four of the past six years, the state’s total existing office inventory continues to decline, often turning into logistics space or apartments.

CoStar analyzed its entire database of demolished and redeveloped office properties across the Garden State, focusing on buildings sized at a minimum of 100,000 square feet. Each demolished building was mapped to a new property that was either completed after 2010 or is currently under construction. Projects that are in the proposal stage or awaiting groundbreaking have been excluded from this analysis.

The dataset reveals that 16 office buildings were decommissioned and became multifamily properties, totaling roughly 4,100 units. About one-third of the new apartments were built in Morris County, led by The District at 15fifteen, a three-building complex with 498 units on Route 10 in Parsippany at the former Intel Corporate Center site.

The District at 15fifteen features a “pedestrian first” town center design that will include 60,000 square feet of retail, year-round programming, such as music events and farmer’s markets, and a full suite of resort-style amenities. Phase one is expected to be completed in October.

Elsewhere, Bergen County has been the epicenter of industrial redevelopment, totaling more than 817,000 square feet since 2010. Lyndhurst has been a focal point for developers, accounting for 37% of the county’s total existing industrial space expansion across four projects. Most of the activity has been concentrated on Wall Street, where a pair of industrial buildings at the Oak Pointe Logistics Center is nearing completion.

Meanwhile, hospitality and healthcare properties have also sprung up at sites where office buildings once stood. In 2017, Hudson County introduced the 258-room Hyatt House in Jersey City’s Exchange Place neighborhood at a site formerly occupied by the First National Bank of Jersey City.

Over in Middletown, Monmouth County, work was completed in 2016 on the Memorial Sloan Kettering Monmouth facility, a treatment center devoted to cancer care. The previous 288,000-square-foot office building was owned by Lucent Technologies but sat vacant for a decade following the company's acquisition by Alcatel in 2006.

While office redevelopment since 2010 has been a welcome sight, more must be done to realign lackluster demand with the abundance of largely vacant properties. And when the time comes, it’s a safe bet that many of these well-located properties will be reimagined with consumer spending and housing in mind."

The ongoing trend of repurposing vacant office properties into residential, industrial, and mixed-use developments is a topic we've delved into before. This trend, as highlighted by Mateusz Wnek at CoStar Analytics, continues to gain momentum. Elevated office vacancies have led to a significant shift, with many properties originally designed for large-scale back-office work now being demolished and redeveloped into more viable uses such as logistics space, apartments, and even healthcare and hospitality facilities.

From our previous discussions, it’s clear that this transformation is not just a temporary response but a growing movement in real estate development. Over the past six years, New Jersey has seen more demolition and redevelopment than new office construction, indicating a long-term shift in property use. CoStar’s analysis provides a detailed look at this trend, noting that 16 office buildings have been converted into roughly 4,100 multifamily units, and significant industrial redevelopment has been concentrated in areas like Bergen County.

This trend of redevelopment has several implications for property taxpayers around the nation. On one hand, the conversion of vacant office spaces into residential and mixed-use developments can stimulate local economies, increase property values, and, consequently, property tax revenues. For instance, The District at 15fifteen in Morris County not only adds nearly 500 residential units but also introduces 60,000 square feet of retail space and various amenities that enhance the area’s attractiveness and livability. Such developments can lead to a broader tax base, reducing the individual tax burden as the local government can collect more revenue from a diversified property portfolio.

Additionally, the transformation of properties into logistics centers and healthcare facilities, such as the Oak Pointe Logistics Center in Bergen County and the Memorial Sloan Kettering facility in Monmouth County, can create jobs and boost economic activity. This increased commercial activity translates into higher business taxes and improved local infrastructure, further benefiting taxpayers.

However, there are challenges and considerations. The transition from office to residential or industrial use can strain existing infrastructure and public services. For example, the influx of new residents in previously commercial areas may necessitate upgrades to schools, transportation, and public utilities. Local governments must carefully manage these transitions to ensure that the benefits of increased tax revenues are not offset by the costs of necessary improvements and expanded services.

Moreover, as properties are repurposed, there may be a temporary dip in tax revenues if the transition period involves prolonged vacancies or construction phases. It’s crucial for local governments to plan and budget for these fluctuations to maintain fiscal stability.

In summary, the trend of redeveloping vacant office spaces in New Jersey into residential, industrial, and other uses presents a significant opportunity to enhance local economies and increase property tax revenues. However, it also requires careful planning and management to balance the benefits with the potential costs and challenges associated with such transformations. As this trend grows, it's essential for stakeholders, including property owners, developers, and local governments, to collaborate closely to ensure that the outcomes are beneficial for all involved, particularly the taxpayers.