Office Puzzle

Construction is Active, Despite Poor Fundamentals in Morris County

by Jason Fargo

New Jersey's Morris County has the largest amount of office space - 27 million sq. ft. - of any county in the state. It also has the highest vacancy rate at 24.2 percent.

And while the vacancy rate should spell idle time for cranes and crews, several large office construction projects are nevertheless under way.

One of the reasons for the continued construction is Morris County's status as a popular New York metropolitan region setting for office campuses. The county is 25 mi. west of New York City and has convenient access in two interstate highways, I-287 and I-80, that cross paths in its borders. The New Jersey Turnpike, Garden State Parkway, and I-78 are also not far away.

"It's in the center of the state and it's got a lot of existing infrastructure and housing stock to support the workers," said Gary Dahms, senior vice president for T&M Associates, a civil engineering firm working on a project for Pfizer Inc. in the county. "It had been a hot area because a lot of companies recognized Morris County had some advantages."

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Most of the current projects have been commissioned by large corporations that are building or renovating facilities for their own use [see Pfizer sidebar]. But the market even has a speculative office building - a 175,000-sq.-ft. structure being developed by the Gale Co. in Parsippany [see Class-A office sidebar].

The county's high vacancy rate stems mostly from tough times facing the telecommunications industry, which began early in 2001 and worsened after the Sept. 11 attacks on the World Trade Center in Manhattan, said Chris Marra, executive director of the Morris County Economic Development Authority.

"Telcordia, AT&T, Avaya, Global Crossing - which all had pretty significant office space - just gave it all back," he added.

Corporate downsizing, both in and out of the telecommunications sector, left the county with several large, unoccupied office buildings with no immediately plausible use. The largest such structure, a 970,000-sq.-ft. facility in Mt. Olive, became available when BASF, a German chemical and technology company, cut back its local presence in September 2004.

The second-largest vacant building in Morris County is a former AT&T facility with 475,100 sq. ft. at 412 Mt. Kemble Ave. in Morris Township.

And Telcordia, which occupied a 320,000-sq.-ft. office building at 445 South St. in Morris Township, vacated its space in order to consolidate operations to Piscataway, N.J.

Those sites are likely to remain empty for a while, said Remy deVarenne, a senior vice president in the Saddle Brook, N.J., office of CB Richard Ellis, a commercial real estate broker.

"The demand is not in the bigger blocks right now," deVarenne said. "If you look at the tenants that are in the market right now, it's mostly 40,000 to 100,000 sq. ft. but not a lot of 200,000- to 300,000-sq.-ft. tenants."

Even Marra, whose job involves promoting the county, said some of the big buildings approach white-elephant status.

"Where are you going to find a user for 970,000 sq. ft?" he asked.

The former BASF building's location at exit 25 off of I-80 is convenient but also less desirable than in the past because of thicker traffic congestion in recent years.

"We're no longer 25 to 30 minutes from a bridge or tunnel crossing," he said. "We're now at 60 minutes to get to New York City."

Still, several large office buildings are rising in the county.

The largest current project belongs to Pfizer Inc., a pharmaceutical company. At its corporate campus in Morris Plains, the company is building two new structures - a 490,000-sq.-ft. office building at 115 Tabor Road and a 250,000-sq.-ft. facility for research and development at 185 Tabor Road.

Cadbury Adams USA recently opened another new building in the county at 945 Route 10 in Hanover, after leaving a facility on the Pfizer campus. The company, which produces candy and chewing gum, built a 147,000-sq.-ft., $40 million laboratory on the site of an office and warehouse that once belonged to a home-improvement retailer.

Last July, another drug company, Novartis Pharmaceuticals, broke ground on two new office buildings at its East Hanover corporate campus. Each building has 144,000 sq. ft. of space, with the first scheduled for completion in October and the second by May 2007 under a combined project cost of $116 million.

Novartis also plans to invest $50 million to renovate four other buildings on the site that house a total of 300,000 sq. ft.

Marra said that once the current projects are finished, the additional square footage could make the county's already-high office vacancy rate harder to tackle.

"Novartis is leasing space out there in the marketplace," he added. "When they build all this new space, some of it is to bring their employees home. So, all of a sudden, that leased space becomes available. And some of that space is in Parsippany."