Repositioning office buildings in the suburban tri-state market

Real Estate Weekly, Dec 10, 1997 by Donald P. Eisen

This trend is likely to pick up momentum in the coming years based on the fact that it takes significantly less time to retrofit space than to build new product on vacant land. In most cases, it is less expensive. Location is also a key factor, and well-positioned older buildings are still attractive because they occupy the most desirable sites.

Within the tri-state area, almost all of the major suburban submarkets including Long Island, Northern and Central New Jersey, Fairfield County, CT, and Westchester County, NY, are seeing increasing renovation activity. While the unique nature of each submarket dictates different renovation trends, the overall picture is clear: today's creative real estate people are getting involved in re-engineering and repositioning.

Long Island

While other markets are just catching on to the redevelopment trend, Long Island has been active in this arena for several years. The market is relatively stable - with a low, 13.4 percent vacancy rate - and, with the high cost of new construction, building on vacant land is virtually non-existent. These favors, coupled with the prime location of many older buildings, have resulted in a heavy push for redevelopment during the past three years.

In Melville, Reckson Associates Realty Corp. purchased 15 acres at 1305 Wait Whitman Road, where an $18 million redevelopment is underway. Reckson is retrofitting the three-story, 165,000 square-foot building on "spec," with a summer 1998 target completion date. Another notable example is the Sbarro Building at 401 Broad Hollow, at the intersection of the Long Island Expressway and Route 110. Originally built in 1969, this strategically-located, 125,000 square-foot structure has been totally rebuilt. Today, it is a modern Class A property with brand-new systems and top-quality interior and exterior finishes.

Northern and Central New Jersey

In Northern and Central New Jersey, available office space has declined by more than four million square feet in the past year, and the vacancy rate has fallen.to 14.2 percent. While new construction activity remains strong at nearly 1.2 million square feet, building renovations are also prevalent.

As many people active in the market had anticipated, older, antiquated industrial buildings have become the next target for office redevelopment. Two current industrial-to-office projects include the MSGW Real Estate Fund conversion of a 229,000 square-foot structure at 41 Spring Street in New Providence, and Reckson Associates' conversion of a 205,000 square-foot former BASF building in Clifton.

Fairfield County

Fairfield County remains one of the tightest markets m the tri-state area, with an overall vacancy rate of 12.2 percent, which is 2.5 percentage points lower than at this time in 1996. New construction activity is low at 123,956 square feet.

Within this context, two notable Stamford properties are expected to be renovated for reuse. The former Dorr-Oliver building at 77 Havemeyer, now vacant, will be converted for leasing during 1998. The 125,000 square-foot property will be repositioned from Class B to Class A space in order to compete in this competitive market. In addition, the relocation of Nine West to Westchester County has left the 184,000 square-foot 9 West Broad Street building vacant. The property will likely be renovated in conjunction with leasing to new office tenants.

Westchester County

While we expect to see an increase in renovation activity in Westchester County, the region has been slower to gain momentum than most of the other suburban tri-state markets. The vacancy rate in Westchester County has dropped 2.6 percentage points in the past year to 15.9 percent, and much of the available space involves several large blocks that have been placed on the market. Yet construction and rehab projects remain slow, as the owners of these larger spaces continue to see active interest from potential tenants, many relocating from New York City or "spilling over" from the Fairfield County market.