The Birch Group is continuing to expand its office holdings in New Jersey amid the pandemic, acquiring a three-building portfolio in Morristown for $77 million that now brings its purchases to nearly $500 million in the suburbs over the past two years.
The Nanuet, New York-based real estate firm has purchased Class A properties with 411,737 square feet at 60 Columbia Drive, 100 Southgate Parkway and 1200 Mount Kemble Ave. from Lincoln Equities Group, headquartered in East Rutherford, New Jersey.
The portfolio acquisition represents privately owned Birch Group’s latest investment in the Morristown area, where the firm owns 350 and 360 Mount Kemble Ave. It bought those Class A office buildings in 2018 for $35 million, and they now operate at 98% occupancy.
The U.S. office market is seeing rough times, with drops in investment and leasing amid the pandemic last year and this year. But Birch Group remains bullish on the sector in the suburbs and is actively seeking so-called value-add office properties in strategic locations throughout North Jersey, Long Island in New York and surrounding regions to add to its portfolio, Mark Meisner, the firm’s founder and president, told CoStar News on Wednesday.
He said he believes the suburban office market is poised for a rebound.
“In any market, there are opportunities to purchase high-quality assets in excellent locations that with well-planned upgrades and aggressive leasing will outperform the market,” Meisner said. “So in the pandemic, there’s been an extraordinary demographic shift to the suburbs. And as we’re all aware, it’s the talent pool that drives corporate relocations and expansions. And the more labor that is residing in the suburbs, the better for suburban office buildings.”
Buying Binge
Many of these transplants “will ultimately prefer to work in the suburbs rather than spend several hours per day commuting to New York City,” according to Meisner.
“This has always been the driver for the suburban office market, and this trend is only strengthened because of the pandemic,” he said.
Birch Group went on a buying spree for office properties, mainly in the Garden State, last year amid the COVID-19 outbreak. Those purchases included: 99 and 119 Cherry Hill Road in Parsippany, New Jersey, a two-building office park totaling 191,249 square feet; 1979 Marcus Ave., a 348,000-square-foot office property in Lake Success, New York; and 55 Challenger Road, a 269,720-square-foot building in Ridgefield Park, New Jersey.
Birch Group plans to make capital improvements and upgrades at its three new acquisitions, complementing the recent $6.7 million of renovations completed by Lincoln Equities.
New Jersey brokers had speculated that there would be a flood of Manhattan companies looking to take satellite office space in the Garden State during the pandemic, in part to have the space for employees to social distance. That was labeled the hub-and-spoke strategy, with Manhattan remaining the center and New Jersey the spokes.
Return to Workplace
While that largely hasn’t happened yet, some New York City firms did lease suburban office space during the COVID-19 outbreak, with Ross Stores taking occupancy in New Jersey and Long Island to supplement its headquarters, according to Meisner. And companies may incorporate the hub-and-spoke strategy in their future plans, now that they are well into devising their return-to-work protocols, Meisner said.
“Once more workers are vaccinated and employees are comfortable returning to the workplace, the expectation is the hub-and-spoke model and the ‘redundant’ locations will allow employees to avoid mass transit at least a few days a week, and in some cases commuting to New York City for only important meetings while working in the alternative locations for the balance of the week,” he said.
Birch Group is seeing an increase in tenant tours at its buildings for small to midsize space and a few for over 50,000 square feet, according to Meisner.
In Birch Group’s portfolio, private smaller and midsize companies have workers coming back to the office full time, he said, but large corporations are still in the planning stages. He expects many more tenants back in the office by the summer and fall.
The Morristown properties are situated near desirable residential neighborhoods, including Harding Township, with convenient connectivity to New York City, major highways and mass transit. Tenants, including Morgan Stanley, Verizon and LG, are provided with on-site amenities ranging from cafes and cafeterias to fitness centers and outdoor seating areas.
Birch Group will look to attract tenants that are seeking to locate or expand in Morristown but have been unable to find space given the heightened demand in the region, which has an office vacancy rate of just 3.5%, according to Birch Group.
“Morris County is known for its major corporate presence and for having the state’s highest concentration of Fortune 500 firms,” David Bernhaut, Cushman & Wakefield executive vice chairman, said in a statement. “There has been increased interest and leasing velocity in the region recently, and we’re confident The Birch Group will build upon this momentum and the firm’s recent leasing success at 350-360 Mount Kemble.”
Since 2014, Birch Group has expanded its portfolio to include more than 3.8 million square feet of value-add office assets in strategic markets that demonstrate sound fundamentals and growth potential.
For the Record
Cushman & Wakefield’s Capital Markets Group represented Lincoln Equities Group, the seller, in the transaction.
Source: CoStar