As the statewide office vacancy rate stands steady at more than 25%, according to industry data, the former BASF building in Mt. Olive is into its fourth year of standing empty. A chemical company from Wayne announced this month that it would take a part of the 1.2 million square feet that Aventis-Sanofi left behind in Bridgewater last summer. But also this month: Pfizer announced it will decamp from 500,000 square feet at Giralda Farms in Madison and Metlife said it will shutter its offices in Franklin Township.

“The suburban office market in New Jersey is not totally dead,” says Aaron Strauss, managing partner and founder of A.Y. Strauss LLC, a commercial real estate law firm based in Roseland. “It's just in a coma.” This is the type of climate, he says, where on bad days landlords are thinking, “Maybe we should just knock it down, and put up a senior living center or a multifamily.”

This past December, Rutgers University released a report called “Reinventing the New Jersey Economy: New Metropolitan and Regional Employment Dynamics.” In it, James Hughes, dean of the Edward J. Bloustein School of Planning and Public Policy, and professor Joseph Seneca did not come right out and use the terms “dinosaurs” or “white elephants” about much of the existing suburban office inventory—although others have since ventured to be more plain-spoken. (“Dinosaurs or Diamonds? Reimagining NJ's Suburban Office Spaces” is the title of a NAIOP seminar that took place in New Brunswick this month, where Hughes was on the panel.)

With their sweeping report, though, the professors did focus in tight on the poor prognosis for re-tenanting many of the behemoths with grounds that are currently empty, or about to be. These include sites like Merck's one-million-square-foot headquarters building in Readington, which the pharmaceutical company will vacate in 2014 to relocate to a more transit-friendly location in Summit. “As the balance of the decade unfolds, the supply of obsolete and underperforming office product is destined to grow,” they wrote, without hedging on the term “destined.” And, they added, “the same reality may confront its campus settings.”

Even if an older building is heavily outfitted with specialized technology, and even if it's set on a campus with decent access to transit, the academics suggest that it may require a bold approach to survive in the modern market. Centra, Hampshire Cos.' recent radical renovation of a building at Metropark in Iselin, was held out as a prime example. In that case, architects from Kohn Pedersen Fox stripped a 20-year-old structure to the steel skeleton and layered an ultra-modern design over its bones. The 100,000-square-foot structure now sports floor-to-ceiling glass, a penthouse conference area, a green roof and is expected to achieve LEED Silver certification. Hampshire has positioned it to be the gateway to a development of up to 741,000 square feet.

In another extreme makeover, Danish pharma company Novo Nordisk has stripped and renovated the 770,000-square-foot former home of Merrill Lynch in Plainsboro over the past two years. Merrill built the original building next to a Wyndham hotel and conference center in 1985. Ivy Equities and LCOR have remade it for Novo with a very modern design. Like Hampshire's Centra, the building features extensive use of glass to create light and airy interiors.

Then there's Mountain Heights Corporate Center in Murray Hill, re-skinned and redesigned with a windowed lobby featuring a waterfall, a new fourth floor and amenities including a cafeteria and gym. After Vision Equities did the work, the building was leased for 10 years to HP Global Financial Services. The firm also recently acquired the aging Crossings at Jefferson Park in Whippany, with plans to knock down one obsolete building and re-do the facades of three others to reposition the campus.

In Parsippany, a newer building—constructed in 1997—at 300 Kimball Ave. is being upgraded by Transwestern, with a redesign of the lobby and the addition of a gym. In a bid to fill 300,000 square feet left vacant when State Farm Insurance downsized several years ago, Transwestern has been aggressively marketing space for nearly a year. The Parsippany market is glutted with space and the average age of office buildings there is 24 years old.

Jeffrey Babikian, an EVP with CBRE, says the flight-to-quality trend over the years has helped to build a cache of buildings that may be most valuable for their skeletons, or their land. “You can only fly to quality for so long,” he said. “Then, what you've got is a very large inventory of B, B+ assets. We are not generating many larger transactions, those 100,000-square-feet and up deals, in New Jersey. What you're starting to see is that while landlords are marketing space for lease, they are also working quietly behind the scenes to sell the property for redevelopment. With any asset over 250,000 square feet, certainly anything over 20 years old or class B, you have to assume the landlord is looking at all opportunities right now.”

There were only nine office deals for more than 100,000 square feet in all of last year in the state. That represents a 65% decrease in deals of that size from the year before. The total office leasing volume of 5.7 million feet in 2012 was the lowest level since the peak of the recession in 2009. Compared to the national office vacancy rate, which at year-end Moody's reported at 17% and improving, the New Jersey rate, topping 25%, is the highest in the nation.

Steven J. Pozycki, founder, chairman and CEO of SJP Properties, hazarded a guess that as many as a third of buildings that are currently vacant, or will be in the next year or two, will never attract new tenants “as-is.” “With these more arcane structures, farther out in the suburbs, there are going to be serious questions,” says Pozycki. He notes the shift in the culture of younger workers, who as a group have “suburban lifestyle fatigue,” as the Rutgers report pointed out. “Those buildings that are not as well located, not close to transit and requiring a long commute—it just doesn't make sense to a lot of companies to go there, because it's not what their employees want,” said the SJP executive. The high cost of fuel figures in as well, he noted.

SJP is the developer of about 10 million square feet of suburban campus property, most of which it still holds, continuously updates and retrofits to make buildings more energy-efficient. SJP itself is based in Parsippany at its 2.8 million-square-foot, 182-acre Morris Corporate Center. With more than 12 million square feet of commercial office space, Parsippany is the state's third-largest submarket, after the Hudson County waterfront and Newark. Like its size, the submarket's vacancy rate is also among the highest, just a hair under 30%.

The rate is “not anywhere close” to being that high for any building in SJP's portfolio, Pozycki hastens to say. “The flight-to-quality means they fly to us and they tend not to leave.”

Most landlords are compelled to focus on tenant retention above all these days. If they fail, a building with high vacancy becomes ripe for foreclosure and a distress sale. At Overpeck Centre in Ridgefield Park, for instance, where the vacancy rate is over 55%, several of the six buildings in the 60-acre park are going through the foreclosure process. A company that specializes in distressed real estate has purchased one of them at deep discount, and plans to buy more.

As a result of the office market slide, some of the biggest names in New Jersey commercial real estate have begun shifts into multifamily and mixed-use property development. Mack-Cali Realty Corp. of Edison, which owns 30 million square feet of office space, is forging ahead on apartment development after acquiring Roseland Properties. Hartz Mountain Industries is at work on its first mixed-use multifamily project in Weehawken. SJP is building two luxury residential towers in Fort Lee, the first one of them going up now.

Besides the growing population of office developers shifting their focus to other product types, there is also a trend—or the beginnings of one—of the conversion of individual office buildings to other uses. In Cranbury, Lam Cloud Management plans to convert a 494,000-square-foot office into a data hosting facility; a building on Executive Drive in Fort Lee is slated for conversion to residential condos; one of the office buildings in Secaucus' Harmon Meadow will be converted to a hotel; and one of the four buildings at Crossings at Jefferson Park in Whippany will be repositioned as a data management center.

Furthermore, Mack-Cali's CEO, Mitchell E. Hersh, has let fly the idea that when Pearson publishing house moves out of its Upper Saddle River office to the new space SJP is building for it at the Waterfront Corporate Center in Hoboken, Pearson's offices could become residential condos. He did not specify as of yet, however, whether Mack-Cali is thinking of a conversion, or new construction.

“Some towns are going to have to rethink their stance on zoning in order for conversions to be possible, and the communities to get new ratables,” says Pozycki. “They will have to move out of an ostrich stance.”

Rutgers' Hughes thinks that the notoriously fierce resistance to residential and mixed-use development in suburban communities will start collapsing as more and more big companies leave their empty office palaces behind. As Roche proceeds to shut down its 90-year-old base in Clifton/Nutley, for example, and only residential/retail developers appear to be stepping up, Hughes and others predict that municipal officials will come to terms with the fact that another huge corporate taxpayer is highly unlikely to enter like a prince on a white horse.

Tom Michnewicz, vice president of development for Somerset Development, was another speaker at NAIOP's “Dinosaurs or Diamonds” conference this month. His company is forging ahead with a mixed-use conversion of the largest vacant office building in the country, the million-square-foot, architecturally distinguished “Bell Labs” site in Holmdel. It took five years to convince local officials and residents to go along with a Town Center plan that includes residential development on the periphery.

“One of our major uses at the site will be for health-related business, retail and offices,” says Michnewicz. “I think one of the things that finally won over the town is that this is a very appealing use to an aging community. The housing at Somerset Town Center will not all be age-restricted, but Michnewicz said there is home-based demand among Holmdel-area empty nesters who don't want to leave the region.

He compared the development theme to the highly successful Summit Medical Center, which offers “one-stop shopping” for health needs. “A person can visit several doctors, if they need x-rays or tests they can be done at the same place, there will be an ambulatory surgical center that will take up to 40,000 square feet in the building, perhaps a rehab center. We are still working on the best way to lay this out.”

The Eero Saarinen-designed building is being sold to Somerset by Alcatel-Lucent in a deal that is expected to close in mid-June. The Town Center development will include a hotel, restaurants, 350-seat auditorium, conference center and meeting rooms inside the Bell Labs building. About 50,000 square feet of service retail is planned along the building's main atrium, which is to be set up as a sort of internal “city street.” Michnewicz says it would include space for a bank, dry cleaners and other amenities that might be found in a downtown location or a modern office park.

The surrounding land will house 185 active-adult units and up to 140 single-family homes. “When Bell Labs was here, this was like a small city during the daytime,” says the developer. “The idea of office buildings as town centers may have seen its day, but the idea of a 24-hour town center is very strong, very 'today.' I do believe it is the future for a number of sites in our state.”