Technology increasingly defines today's tenants - Focus on: Energy, Technology and Conservation

With low availability rates and rental rates spiraling upward throughout New Jersey, landlords have been re-evaluating their real estate holdings, and those with vacant buildings may be scratching their heads as space is being leased around them.

The pressing question for those landlords is often, "What can be done to draw today's tenants to my buildings?" If their holdings are in prime locations, where there is little or no new construction on the horizon, the answer may lie in a willingness to invest the capital to completely rehab the existing facilities.

What defines today's tenants? Foremost is technology. Tenants are increasingly relying on advanced computer networks, including intranets and the Internet, to provide the backbone for their businesses. Interestingly enough, we are not simply talking about computer firms. Rather, technology is driving a broad spectrum of companies, from financial service companies to law firms and real estate companies, large and small.

The modern tenant is in the market for "smart" buildings, which are completely wired for fiber optics and communications systems. It is more cost-effective to run data lines from ground floors to satellite dishes on the roof, prior to tenants moving in, and then performing the necessary work.

Another branch of technology involves the mechanical and electrical systems that are being designed for new and renovated office buildings. Many tenants are no longer restricted to the 9 to 5, Monday to Friday workday schedule. Rather, tenants often need access to their spaces 7 days a week, 24 hours a day. Card access to buildings plays an integral role in providing security during all hours.

The mechanical and electrical systems also need to be upgraded and designed to provide the most efficient means of output, at the best overall costs to the tenant. Six to seven watts per-square-foot of electrical power has become a prerequisite for many energy draining systems used by tenants. Electrical systems need to be designed to handle future energy requirements, rather than present needs. Redundant backup systems are being built into new and rehabbed buildings, assuring that tenants can conduct their operations in an uninterrupted, controlled environment.

Ambitious landlords have been purchasing older, often vacant buildings that are simply impractical for today's high-end tenants, and are seeking to completely reposition their holdings. In many cases, the costs associated with new construction make rehabs an appealing option. For example, Newark, which contains a majority of the state's older office buildings, has attracted entrepreneurial investors that have sought out office properties neglected by past ownership and can be repositioned. There is no new construction taking place in Newark, which has undergone a dramatic rebirth in recent years. The Class A office market maintains availability rates in the single digits, while older buildings comprising the Class C market have an availability rate of nearly 40 percent.

In late 1997, the Cogswell Realty Group purchased a nearly 70-year old building at 744 Broad Street and is pouring millions into renovating and upgrading the building for the next century. While the lobby areas and external facade are being refurbished, new mechanical and electrical systems are being installed. The entire building is being wired for computer and communications networks. With this repositioning, 744 Broad Street will attract tenants seeking a "modern" office building, containing features found in recently constructed buildings.

As the Class A market continues to tighten in many of the state's submarkets, tenants seeking quality, high-end space are looking for other options. The alternatives may exist in the market of retrofitted buildings, which can effectively be upgraded for the 21st Century at costs that are less than new construction. These cost savings can then be passed on to tenants in the form of lower rents. The technological needs of today's users will continue to influence the real estate decision process.

COPYRIGHT 1999 Hagedorn Publication
COPYRIGHT 2004 Gale Group