Firms Find Wide Open Office Spaces in Franklin

Published in the Home News Tribune 04/11/04

By KEN TARBOUS
BUSINESS WRITER

Franklin is open for business, with plenty of bargains to be had. The glut of vacant office space in the township, more than 2.2 million square feet, has created a tenants' market along the Interstate 287 corridor. " Franklin Township is really a hot spot right now for companies that are looking to control their operating expenses and have modern office environments," Ray Sohmer, who has worked in commercial real-estate leasing for more than 20 years, said. "The township is very business-friendly, and there's some very affordable office space that companies can take advantage of."

In the township that covers 46.40 square miles with a population of 50,903, the amount of office space is estimated by real-estate professionals and government sources to be between 5.2 million and 7 million square feet. Franklin had been the beneficiary of two superindustries, with a huge population of financial-services and telecommunications companies -- "part of Telecom Alley," according to Sohmer, the director of Central New Jersey brokerage services for CB Richard Ellis out of its East Brunswick office. Both sectors have suffered downturns in recent years. The departures of AT&T and Merrill Lynch within the past three years left empty more than 1 million square feet of office space, decimating the Davidson Avenue area submarket, with about 3 million square feet of space. The departures created a vacancy rate that was probably one of the highest in the state, according to the brokerage community. In nearby South Plainfield , Motorola Inc. is looking for a tenant to take over its 237,000 square feet of space. Merrill Lynch occupied about 925,000 square feet of office space on Davidson Avenue at one time, and AT&T and its spinoffs about 600,000 square feet. " Davidson Avenue is really the epicenter of the critical mass of office buildings in Franklin Township," Sohmer said.

The township is a viable secondary office market to the interstates 78/287 corridor, which historically has been very expensive and high end, according to Sohmer. The Crossroads Corporate Center near Bridgewater Commons mall, because of its location near wealthy communities along Route 78, commands nearly twice the money of buildings in Franklin .

"There's still a very decent population of smaller companies on Davidson Avenue that are doing quite well and are growing," said Sohmer. Leasing activity typically is linked to increased spending and new hires by businesses, both aspects closely related to economic strength, or expansion. Companies likely are waiting for the results of the November presidential election and further indications of economic recovery before investing in new leases, according to some in the brokerage industry.

In Central New Jersey , the office-space market has lagged behind other sectors and has suffered from the increase in productivity over the past several years. A total of 2.279 million square feet is available -- a vacancy rate of 32.56 percent, down from approximately 40 percent at the end of last year. More than 1.678 million square feet is available for lease and more than 600,000 square feet is available for sublease, according to CB Richard Ellis data. The vacancy rate for the Central New Jersey office market, which includes six counties as defined by Cushman & Wakefield, is 21.5 percent as of the end of the first quarter. Figures on office-space inventories and vacancy rates vary from source to source depending on definition of markets and submarkets and what type of space is counted. The consensus is that Somerset County has more than 19 million square feet of office space, with an overall vacancy rate remaining stable between 33 percent to 35 percent, according to estimates.

"There are some larger deals that are stalking these markets, probably to take advantage of the very aggressive rental rates that are offered here as opposed to the Route 78 corridor," according to Charles Parmelli of Colliers Houston & Co.'s Franklin office. "We're going to see some increasing activity over the course of 2004 as long as the economic fundamentals stay positive and we don't see bad news abroad or on the home soil," Parmelli predicted, adding the unknowns of an election year contribute to slower growth. "The marketplace in general, including Franklin Township along the 287 corridor, is fairly depressed, and there's still a fairly high vacancy rate if you consider the submarkets individually," Parmelli said. The Franklin/Piscataway/287 submarket has one of the highest vacancy rates in the state, he said. Reluctance in the corporate-real-estate marketplace lingers because the economy is not adding jobs at a steady rate, Parmelli said. "There's been a tremendous lack of activity over the past two, perhaps three, years with the decline of the overall economy."

Parmelli said 19 Schoolhouse Road , which his firm lists, is an example of "almost purely a technology-oriented building, it's not a traditional office building." The site, previously occupied by Lucent Technologies and one of its spinoffs, has a unique infrastructure that might appeal to telecommunications companies. Parmelli also cited the areas around Belmont Drive and Cottontail Lane as examples of a diverse neighborhood, combining warehouse and distribution, technology-oriented spaces, and offices. Central New Jersey has tremendous concentrations of office and industrial space, he added, and over the past three years industrial space has outperformed office space. Parmelli cited Davidson Avenue buildings and the Telcordia Technologies site in Piscataway , at more than 500,000 square feet, as examples of larger spaces unable to compete with the "bread and butter of the market," spaces smaller than 50,000 square feet, which are starting to fill up.

Class A properties, which have features and amenities such as cafeterias, gyms, dramatic attractive lobbies and common spaces, are a plus for Franklin . "Buildings that would serve as a corporate headquarters" are available at prices well below those of the most desirable properties in the state, according to Joseph Sarno, senior director of Cushman & Wakefield's Central New Jersey office in Metro Park . He estimated rents are 30 to 40 percent cheaper in Franklin .

"It has historically been a market that is the first to slide in a down market and the last market to recover," Sarno said, citing traffic and congestion issues as contributing to the submarket being considered difficult to lease space in. "On the plus side, it represents a great value for tenants, because you've got high-quality space with great infrastructure." Cushman & Wakefield recently completed one of the biggest deals in the market in the past several years, with benefits-management firm CitiStreet relocating from East Brunswick to 147,116 square feet at the Atrium Corporate Center, a five-building complex on Davidson Avenue consisting of 850,000 square feet. The Atrium complex has 275,000 square feet of vacant space.

Franklin Mayor Brian Levine, who took office in January, said the CitiStreet deal shows that the township's aggressive work to help find new tenants has been paying off. "It's beautiful prime office space, it's a beautiful campuslike atmosphere," said the Republican mayor who is a CPA with his own office on Easton Avenue in town. Township director of economic development Frank Hasner, who Levine called a business advocate, acknowledged difficulty filling larger spaces, such as 290 and 300 Davidson Ave. where Merrill Lynch leased space, as opposed to 265 Davidson, where Merrill also had some smaller spaces, most of which have been leased. "Certainly we recognize that there is a very high vacancy rate in Franklin Township ," Hasner said. "We hit a recession, we had Sept. 11, and then we also added to the mix Merrill Lynch relocating and our heavy reliance on the telecom industry, AT&T in particular." Hasner has been given the advice from real-estate firms to "stay alive till '05" when the marketplace and the economy are expected to improve. "We've been trying to position ourselves so that we can capitalize on the market turning around, including communication with the brokerage community and making sure that we would expedite any permits we see come by." Both Levine and Hasner said light, "nonsmokestack" manufacturing is strong in Franklin , the opposite of state and national trends.

Dublin, Ohio-based Cardinal Health opened an $80 million, 265,000-square-foot research-and-development center on Schoolhouse Road last year. Hasner also cited growth of retaining-ring maker Rotor Clip Co. Inc., which has its U.S. headquarters at 187 Davidson Ave. , and Tokyo-based House Foods Corp.'s plans for a 104,000-square-foot tofu plant on Randolph Road that will create up to 125 jobs. With the project to extend Route 18 to connect with Interstate 287 underway, there's a renewed hope that the submarket might flourish again. "If it works, it's going to be a terrific connector to East Brunswick and the Turnpike," Sohmer said. Los Angeles , Calf.-based CB Richard Ellis posted revenues of $1.6 billion in 2003, with 220 offices worldwide. The firm manages 821.6 million square feet. Colliers Houston, part of Colliers International USA headquartered in Boston , Mass. , had 2003 revenues of $880 million worldwide, with 238 offices worldwide. The company has 332 million square feet under management. Cushman & Wakefield, based in New York , had revenues of $750 million in 2002, with 160 offices worldwide. Cushman manages nearly 300 million square feet.

Ken Tarbous:(732) 565-7319;ktarbous@thnt.com