Where technology has hurt property: empty office parks
Perched off a busy road in northern New Jersey with sweeping vistas of a vast reservoir sits a new relic of the suburban panorama: the international headquarters of Toys “R” Us slogging through its final days after the company announced that it would be shutting down for good.
The decline of the toy giant prompted wistful recollections across the country of the increasingly bygone era of brick-and-mortar retail, but concern in this town quickly turned to the exoskeleton that the company leaves behind a roughly 80-hectare plot with multiple office buildings scattered across the land that once housed as many as 1600 workers.
While the worry locally is focused in part on what an extended vacancy might mean for the town’s tax base, the fate of the once thriving headquarters illustrates a much broader reality confronting many towns across America: the era of suburban office parks is coming to an end.
Outside Silicon Valley and other areas that have benefited from the technology boom, what was once the lifeblood of many suburbs has now become eyesores, forests of empty glass and concrete boxes that communities must figure out what to do with.
Nowhere is the demise more keenly felt than in New Jersey, where the country’s first corporate campus was built in Murray Hill by AT&T Bell Labs in 1942. The state experienced perhaps the biggest building boom of office parks during the 1980s.
“The model as it played out in New Jersey is now seemingly obsolete,” said Louise A. Mozingo, chairwoman of the Department of Landscape Architecture and Environmental Planning at University of California, Berkley.
Suburban office parks have lost their lustre for a variety of reasons, including a growing preference among younger workers for life in more dynamic urban centres than in sometimes staid and sleepy suburbs. And the rapid pace of technological advancement has made the need for many clerical and processing jobs and the real estate to house those workers increasingly obsolete.
But it was the recession and its aftermath that sounded the death knell for many suburban parks; New Jersey has lost about 100,000 office-related jobs since 2008, according to James W. Hughes, a professor at Rutgers University. By 2010, the majority of the state’s suburban office inventory was between 20 and 30 years old, built during a much more primitive information technology era.
“So, not only do we have a lot of obsolete space, but we also have workplace densification occurring at the same time,” said Hughes, referring to the move by many companies toward smaller, shared workspaces. “That’s the dilemma that really burst onto the scene maybe three years ago or four years ago.”
In the 1980s, about 8 to 9 million square metres of suburban office space was built in New Jersey, accounting for 80 per cent of the state’s inventory, Hughes said. By contrast, only 50 per cent of the national suburban office inventory was built in the same period.
New Jersey currently has more than 600,000 square metres of vacant office park space, according to CoStar, a commercial real estate company. In northern New Jersey, 23 per cent of office space is listed as available, which includes vacant spaces and buildings that are emptying out as leases end, according to Newmark Knight Frank, a commercial real estate firm.
But vacant office parks are important to municipal coffers because they remain on property tax rolls. Yet the longer they sit vacant, the faster their assessments plummet, forcing municipalities to find other sources of revenue and in some cases raise real estate taxes in a state that already has the country’s highest property taxes.
In Roseland, about 11 per cent of the town’s overall property tax base is vacant office space, according to data provided by Newmark Knight Frank. In Bridgewater, two office parks are responsible for more than $US1.7 million ($2.3 million) in taxes. In Parsippany, four vacant buildings account for $US1.8 million in taxes. In Warren, the former headquarters of Chubb Insurance pays more than $US1 million in taxes, but that is far less than when the property had a higher value.
However, some municipalities are seeing opportunities in the vacant spaces. In some places the properties are being considered as a low-cost option to expand affordable housing, though that has proved somewhat controversial. Other municipalities are looking to re-imagine the buildings with amenities to attract younger workers, including restaurants, banks, fitness centres and open-design offices all housed within a walkable or bikeable campus.
“None of these Millennials want to work in a corporate campus in western Morris County and have to commute long distances to meet their friends at a bar,” said Carl Goldberg, a developer who has been vocal about the redevelopment of office parks. “It’s just not the lifestyle that they’re interested in.”
One model in the state has been particularly successful: the former Bell Labs building in Holmdel. Now called Bell Works, it is a 190,000-sqaure-metre, glass-encased behemoth with coffee shops, pop-up restaurants and a soon-to-be-completed wine bar and food hall on the first floor that is open to the public. Businesses occupy the rest of the space, with footprints as small as 32 square metres to as large as 32,500 square metres, and interest from companies has been high since the complex opened in 2013.
While Bell Works does not have residences, condominiums are being built nearby by a different developer and the office space has drawn workers from the surrounding area, including Asbury Park and Red Bank, who like the amenities and do not want to commute to New York. And the building has become a bit of a downtown hub, the Holmdel Library is on the first floor, as are doctors offices, hair salons and a gym.
“We coined a term for this: Metroburb,” said Ralph Zucker, the developer behind Bell Works. “They said it’s an insane idea, we wish it could work, it’s great, it’s what we need, but you’ll never pull it off. Once we started pulling it off, everybody jumped on board.”
It has proved particularly appealing to tech companies that face the challenge of attracting a mostly younger workforce to the suburbs.
“You go out to the burbs and then, you may have a cafeteria, and you may have two or three options, but that’s it,” said Ken Wincko, the chief marketing officer at WorkWave, a software company and one of the original tenants of BellWorks, who commutes 45 minutes from Morristown. “Here, to be able to have a wide array of options, plus support from the community, you have everything that you need.”
Affordable housing backlash
Other municipalities have tried to turn vacant office parks into residences in response to a long-standing court order to expand affordable housing in many New Jersey towns. But while the costs might be lower than building from scratch, the efforts in some cases has provoked a backlash.
In Park Ridge, the former mayor, Terry Maguire, resigned amid a recall attempt after his attempts to turn the former roughly 15-hectare Sony office park into affordable housing.
In Montvale, Mayor Michael Ghassali described the battle he faced in trying to convert a vacant office park into affordable housing.
“There were protests at every meeting, at the office, the council meetings, the phone calls, emails, there was not one person that was for it,” he said. “We voted on them three times. Twice was no, and then the third time is when the court said if you don’t do it, then we will make the decision for you.”
As a result of the legal pressure, Ghassali has managed to carve out affordable housing, along with luxury condos, from some of the vacant office parks that are helping to plant the seeds for a new downtown.
In Wayne, where the Toys “R” Us logo still welcomes passers-by to the campus, Mayor Christopher P. Vergano said he believed the site would prove desirable, though possibly as something far different.
“I think there will be change,” he said, “only because we don’t see big corporate tenants buying 200-acre properties anymore.”