New Jersey’s struggling office market is facing another big challenge: the exodus of millennials.
Landlords have faced numerous hurdles during the past decade, from the recession to vacant corporate campuses left behind after company consolidations. The latest is an “alarming” outflow of young workers from the state, according to a report from real-estate services firm CBRE Group Inc.
Attracting and retaining millennial employees has been a priority for companies making real-estate decisions, brokers and analysts said.
“If a certain amount of millennial talent is not here, companies will look elsewhere,” said William Forcello, CBRE research manager and one of the authors of the report.
The preferences of the millennial generation, typically those born between the early 1980s and late 1990s, already have placed New Jersey’s largely suburban office buildings in a tough position. This younger workforce is known for favoring urban settings and workplaces that are close to where they socialize.
New Jersey’s millennials are concentrated along the state’s waterfront in locations such as Hoboken, Jersey City and Newark, offering downtown communities and plentiful transit connections to New York City.
Both landlords and employers have taken note of the exodus, said brokers and real-estate analysts. A number of landlords have been investing heavily to renovate older buildings, adding lobbies with Wi-Fi, baristas and wine bars, lounge seating and cafeterias offering a variety of food options. Others are subsidizing beefed-up transportation to and from train stations and hip downtowns using vans or ride-sharing apps.
Retention and recruiting millennials is one of the top concerns driving real estate decisions. Today, companies’ human-resource leaders are having much more say in the process than in the past, said Andrew Judd, managing principal for the New Jersey region at real-estate firm Cushman & Wakefield.
“Smart companies have HR people at the table and in some cases they are driving it,” Mr. Judd said of the decisions-making process. “The last thing you want to do is make a move and find you don’t have a labor pool to draw from.”
The younger workforce is being squeezed by New Jersey’s high cost of living and the burden of educational debt that often can’t be supported by entry-level wages. The report cites an average statewide salary of $36,000 for graduates with a bachelor-of-arts degree.
People between the ages of 18 and 34 made up the segment leaving the state at a higher rate than any other age group between 2007 and 2014, according to U.S. Census Bureau data.
In 2014, the number of millennials moving to the state fell short of those leaving, making for a net loss of 57,566 residents. Those moving out aren’t going that far, said Michele Siekerka, chief executive of the New Jersey Business & Industry Association. Many are moving to Pennsylvania and New York.
“This is our future workforce,” Ms. Siekerka said. “New Jersey has always been known for having a highly skilled workforce, and we need to maintain that.”
Many landlords have shaped their strategies around appealing to millennials, said Jeffrey Heller, principal and managing director of the New Jersey operation for real-estate services firm Avison Young.
The company is the leasing agent for a recently renovated six-building complex called Park Avenue at Morris County in Florham Park. The owner revamped the atrium of the flagship building and added two vans to transport employees to and from the train station and downtown Morristown. The owner also created an open space for collaborating in the atrium of the main building, outfitting it with a barista and a wine bar.
Moreover, companies nowadays are paying more attention to the environment outside the four walls of the office, Mr. Heller noted.
“They want to know what’s the lifestyle out on the street or surrounding area,” he said, “or how are they going to track back to New York City or Brooklyn because that is the nerve base.”
Many millennials are coming from a few years of living on college campuses with recreational areas, academic buildings and collaborative spaces. Developer Vision Real Estate Partners tries to recreate some of that environment on its suburban campuses, said Sam Morreale, managing partner of the company.
One example is the Warren Corporate Center, a property in Warren, N.J., owned as part of a joint venture with Rubenstein Partners. The partnership is building a stand-alone amenity building in the center of the 820,000 square-foot complex, featuring an indoor basketball court, conference-room facilities, a food court with a coffee bar, fitness center and a green roof with event space.
“The work force’s learning environment is now the environment where they want to earn,” Mr. Morreale said. “You need to re-create the experience they grew up with as an 18-year-old and in their formative years in college.”
Write to Keiko Morris at Keiko.Morris@wsj.com