New York, NY

NEW YORK (Dow Jones)--Merck & Co.'s (MRK) proposed $41 billion takeover of Schering-Plough Corp. (SGP) continues a wave of pharmaceutical consolidation that could dump more commercial square footage in the Northeast Corridor.

The potential for thousands of job losses and other extensive cost-cutting measures may compel Merck to dispose of certain research-related facilities and other buildings that prove duplicative. Although experts say it's too early to tell how things will shake out from a merger, some buildings are likely to be put on the block at a time when commercial property values are plummeting.

Milt Charbonneau, a vice president in the life sciences group at Colliers International, said he expects a similar scenario to when Pfizer Inc. (PFE) sold its consumer products division to Johnson & Johnson (JNJ) in 2006. "There was duplication of space and some excess properties that were sold off because of that."

He said the lab operations will probably stay put for a while, but some of the older research centers could be sold off.

Merck's corporate headquarters are located in Whitehouse Station, N.J., but the company also has properties in Pennsylvania where it conducts its U.S. pharmaceutical business. The company's proposed buy of Schering-Plough comes nearly two months after Pfizer announced it was buying Wyeth (WYE) for $68 billion. Both companies also have a strong presence in the tri-state area.

Charbonneau said Schering-Plough's corporate and global pharmaceutical headquarters in Kenilworth, N.J., could be considered a redundant property.

"Merck's existing operation probably will stay pretty much the way it is," he said.

For Merck's part, a company spokeswoman said via e-mail that the integration team will determine "how best to utilize the strengths and scale of the combined company, and it is too early to speculate about any specific decision that will ultimately be made."

Any potential for rising vacancies comes amid expectations that demand for the biotech and pharmaceutical space will remain robust even in a deepening recession. Indeed, the stocks of public real estate companies investing in these sectors have generally outperformed their peers in the battered commercial property market.

"With all of these mergers, what you may be seeing is a focus on some of the facilities that are state-of-the-art (with) some of them being retrenched into and some of them coming on the market," said David Binswanger, who heads the Philadelphia-based global real estate firm Binswanger.

He added that he didn't expect a lot of buildings to be put up for sale, but the demand should be there for those buildings that do end up on the block.

"There's no question whether it's Merck or Schering-Plough or Wyeth ... all have a variety of very strong, well-located facilities that would be of interest if they were ever to come on the market," he said.

However, Colliers' Charbonneau said that demand will likely be tempered.

"In New Jersey, there is marketing, financial and strategic planning. The research (being) done in New Jersey is less and less ... every year."

"In the short run, everyone will want to put a flag in the sites (that could be sold). The question is who's the right fit for the town and whose got the money?" he said.

Jerry Zaro, chief of the governor's office of economic growth in New Jersey, said they didn't anticipate a big impact on vacancy rates.

"I don't foresee buildings being shuttered and layoffs in droves ... in New Jersey because we are going to be the worldwide headquarters of the now double-the-size Merck," Zaro said. He projected Merck will continue to grow as a company over the next several years.

-By A.D. Pruitt and Peter Loftus, Dow Jones Newswires, 201-938-2269; angela.pruitt@dowjones.com and 215-656-8289; peter.loftus@dowjones.com

About Colliers International

Colliers International is a global affiliation of independently owned commercial real estate firms. The organization's 12,749 employees span the world in 294 offices in 61 countries. On a worldwide basis, Colliers manages 1.1 Billion square feet, and has revenue of $US 1.6 Billion.

Contact Information

Milt Charbonneau
Vice President

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