New Jersey continues to struggle with job creation, and the December’s report just about wipes out the gains that were picked up during 2013. The unemployment rate did drop, but that was due to the labor force declining.
Jersey City is trying to market itself as an attractive alternative site for urban dwellers on the west side of the Hudson River and the state is pursuing Foxconn for a manufacturing facility.
Finally, some thoughts from me on what the future holds for how companies will use space.
Star Ledger: NJ’s downbeat December jobs report nearly quashes Jersey job gains for 2013
Wall Street Journal: Jersey City Dreams of a New Image
Star Ledger: NJ said to court iPhone manufacturer Foxconn for Garden State plant, report says
The Front Lines of tenant representation: The Future of Space
I recently finished a project for a technology services client. When we started discussing layout and space requirements, I was surprised to hear just how dense the operation was going to be.
This tech firm was planning to operate at 155 square feet per person. And I just heard a similar plan coming from a professional services client. They are planning to take 165 square feet per person.
These are not two isolated stories. I just spoke with a broker that represents a building in Northern New Jersey. He was discussing a large law firm that is planning to downsize and take 33% less space, but have the same number of attorneys. I had a similar conversation with a friend about the plans for his company. They are moving to open layouts, shared desks, and denser configurations.
Companies are looking at ways to make space more efficient, eliminate excess overhead, and improve flexibility. Employees are working in open environments and there is frequent desk sharing. Private offices are disappearing and communal space is being created. Office space isn’t disappearing, but the way people use it is changing.
The state economy continues to struggle against high unemployment, despite some modest job gains towards the end of 2013. Despite this, the region, and a few companies in New Jersey received venture capital funding, showing that not everyone is giving up on the state.
The Wall Street Journal highlights significant construction taking place in some suburban enclaves, where multi-story office and apartment buildings are springing up. This has always been resisted in New Jersey and it will be interesting to see if that trend continues.
National Real Estate Investor published a positive piece on the future of real estate investing and suggests that the first quarter of the year will set the tone for 2014 as a whole. Mack-Cali is counting on that positive impact and eager buyers as the continue to shift away from their core office portfolio and into multi-family.
DTZ has published their New Jersey office market report. Get it here: 2014 Office-Northern New Jersey
Shawn Gehle of architecture firm Gensler has some interesting ideas about retrofitting old buildings.
The Star Ledger: NJ’s downbeat December jobs report nearly quashes Jersey job gains for 2013
The Bergen Record: New Jersey region start-ups see jump in venture capital funding this quarter
The Wall Street Journal: Suburbia Looks to Grow Up
National Real Estate Investor: The Future Is Bright For Real Estate
Costar: Mack-Cali Positions Assets For Sale
Hackable buildings: Shawn Gehle at TEDxVeniceBeach
My team and I recently finished helping a home housewares client restructure their headquarters lease. The project presented some unique opportunities and challenges based on the nature of the business, the average employee tenure, and conditions in the market.
The client has been enjoying exponential growth over the past five years. Despite the economy, they have seen a 20% increase in sales during that time, and the board has continued to expect these results. Management recognized that in order to continue at this pace, there would have to be significant investments into the brand, attracting talented new employees, while also retaining critical staff. The current facility had been occupied in its existing configuration for almost twenty years. The layout, finishes, and environment no longer fit with the company culture and mission going forward.
DTZ was engaged to assist with addressing a number of these issues and leveraging the real estate to make a positive impact on the organization going forward. The team started with a comprehensive space study to evaluate current space utilization while also creating a vision of what the organization would look like at specific points over the next decade. The research department completed a deep-dive into employee demographics to help focus the geographic search. This identified where new employees would be recruited from while also minimizing the impact on existing staff. Finally the brokerage team completed a comprehensive market search and considered all building classes and configurations to create leverage in negotiations with both relocation alternatives and the existing landlord.
When the project was completed, the team decided that renewing and restructuring the existing lease would provide the most ideal combination of cost savings while also minimizing impact on the existing staff. The final results of the project included:
• Achieving a 26% reduction in rent that took effect a full year before the existing lease expired.
• Significant work letter from the landlord to complete space reconfiguration
• Creating a dynamic work environment to attract new employees while also maintaining stability for existing employee base
• Landlord funded upgrades to the base building, including the roof, bathrooms, and building façade.
Some interesting news about the wealth of the state, despite persistently high unemployment. According to an article in the Star Ledger, “New Jersey has the second-highest percentage of households worth at least $1 million in the country.” (I guess the article I posted in last week’s news run-down about all of the people leaving New Jersey is referring to mostly low wage workers?)
National Real Estate Investor reports that pendulum of negotiating power is swinging back towards the landlord’s favor, while the Wall Street Journal reports that Newark’s office market is struggling to gain momentum.
Booz & Co has some interesting thoughts on what employers need to think about as the telecommuting trend continues and how it impacts the bottom line.
Star Ledger: N.J. has 2nd-highest percentage of households worth $1 million or more, study says
Strategy+Business: Five Essential Elements of the Digital Workplace
Wall Street Journal: A Sign of Newark’s Uneven Recovery
National Real Estate Investor: Landlords Snatch the Office Reins for 2014
I was speaking with a client about his pending lease expiration. He has 13 months before the expiration date and felt there was plenty of time to address the project once the summer comes. He is a major tenant in the building and by his rationale there was no reason to expect that the landlord wouldn’t just roll over. He fully expects the landlord will offer aggressive terms right out of the box.
I get it. Inertia is powerful and relocating an office can be painful. But getting out in front of the process tips the scales in favor of the tenant. Here are three things to think about in advance of your lease expiration:
1. Negotiations take time. Even if the parties are negotiating amicably, people get distracted, there are holidays, people go on vacation, and there is always another crisis. Waiting until the last minute just creates another crisis.
2. You need time to create leverage and negotiate the best deal terms. This means working through the process of evaluating alternative buildings, creating plans for those options, and creating an active bidding environment.
3. Landlords have a good handle on the real estate process. The above timeline outlines the sheer number of items that need to be addressed during relocation. Landlords understand this better than tenants and use this to their advantage during negotiations. The closer the tenant gets to the expiration date, the less likely they are to move.
The WSJ reports that the office rental market is getting stronger, Mack-Cali has gone “all-in” on residential real estate and backing away from their traditional investments in office buildings, and a flood of debt secured by commercial real estate investment may provide opportunities for aggressive lenders.
The Journal also had an interesting piece on how technology companies are trying to change how corporate real estate brokers conduct business in the future and Gunnar Branson has some interesting ideas about the evolution of how we will use real estate into the future.
Finally, people seem to be leaving New Jersey according to surveys conducted by United Van Lines.
Wall Street Journal: Office-Rental Market Is Getting Stronger
Star Ledger: Moving vans taking people out of state in droves
Wall Street Journal: Office Landlord Changes Course
Wall Street Journal: Real-Estate Tech Takes NYC
National Real Estate Investor: Flood of Debt, Opportunity Hits CRE
Moore’s Law of Real Estate : Gunnar Branson at TEDxNaperville