Princeton area office demand strong

Mercer Business, May 01, 1998

The Greater Princeton office market saw a sharp increase in occupancy during 1997 and now stands at 91%, according to Buschman Jackson-Cross ONCOR International.

As occupancy climbed, rental rates increased in all building classes. The past year was one of "mega" deals, with four large transactions having a significant impact upon the office market in 1997, and likely to have a significantly impact well into the 21st century.

The Route 1 Corridor

The Princeton/Route 1 office market continued to exhibit a dramatic increase in demand in 1997, with occupancy finishing the year at 96 percent, up from 91 percent at the end of 1996, with availability declining to 226,547 square feet, the lowest level in the 13-year statistical history of the Jackson-Cross survey. Year-end vacancy was at 5.3 percent, down from 9.2 percent. Absorption, the net increase or decrease in available space, was positive at approximately 400,000 square feet. Leasing activity totaled just over 526,000 square feet in existing buildings and an additional 390,000 square feet in two build-to-suit buildings.

John Brandbergh, vice president, Buschman Jackson-Cross, reports that a look at occupancy by class is even more revealing: "Class A space is a staggering 98.9 percent," said Brandbergh, "and even Class C is at 92.3 percent.

"The high occupancy in this segment of the Greater Princeton office market underscores the scarcity of large, contiguous blocks of office space, especially Class A space, which is extremely limited," said Brandbergh.

"One of the four mega deals occurred in the Route 1 market. Raytheon occupied 90,000 square feet at Carnegie Center early in 1997 and occupied an additional 230,000 by year's end. In addition, Raytheon signed a lease in a build-to-suit office building that brings the total leases signed to 512,000 square feet."

The Princeton/Route 1 market lies between Lawrenceville and New Brunswick, with the majority of buildings located within one mile of Route 1. The market' s 104 buildings contain 7.2 million square feet of space, representing nearly 50 percent of the total Greater Princeton office market.

Riding the crest of this strong, tight market were average rental rates that reflected demand: $23.08 per square foot for Class "A" space, $20.16 for Class "B" space, and $16.67 for Class "C" space. This compares to average rates of $22.20, $19.37 and $16.33 one year ago.

Route 1 Corridor Outlook

"Because of the diminishing space availability situation, leasing activity in the Princeton/Route 1 Corridor is expected to be lower than in 1997 unless it is in build-to-suit buildings," said Brandbergh. "If we are to see any significant leasing numbers, there will have to be a combination of both new build-to-suit and spec construction. This appears to be the pat tern that will emerge during the year.

"Absorption in 1998 will again be positive but at reduced levels, and we expect rental rates to increase, perhaps by as much as 15 percent."

Princeton Submarkets

Buschman Jackson-Cross office specialist, Thomas Romano, reports that 1997 was an active year in the submarkets: "Vacancy was down, absorption was up and speculative construction began."

The five Greater Princeton submarkets account for just over seven million square feet in 155 buildings. This segment of the market includes Exit 8A of the New Jersey Turnpike, Lawrence/Ewing, Hamilton/ Windsor, the Route 206 Corridor, and Trenton.

"The overall vacancy rate decreased to 11.2 percent in 1997, down from the previous year's 17 percent," said Romano.

A particular "hot spot" of activity was the Lawrence/Ewing market, with the purchase of two buildings totaling 840,000 square feet, a purchase contract for another 70,000 square feet, and leasing that totaled 54,500 square feet. In addition, Merrill Lynch announced plans to acquire 450 acres on Scotch Road from Bristol Myers Squibb, where it plans to construct a 3.5 million square foot campus complex of offices, a hotel/conference center and retail shops. "This mega deal could totally transform the Princeton office market over the course of the next 10 years," said Romano.

REITs also were involved in the marketplace. First Industrial Realty Trust purchased Princeton South, a 100,000 square foot, four-building complex, as part of a $105 million transaction, from The Punia Company.

Princeton Submarket Outlook

"We expect to see more build-to-suit and spec construction in 1998," said Romano. "However, we believe this will be at a more cautious pace than in the 1980s. We also expect to see continued upward pressure on rents with possible stabilization only if speculative construction dramatically increases. This year should be another strong year in the Greater Princeton submarket segment."