Office market healthy in Mercer

Mercer Business, May 01, 1998

Shakespeare asked what's in a name? A modern bard might ask what's in a zip code?

And the answer is that your zip (read location) is very important if you are involved in a prominent and prestigious business operation in or near a building located along U S. One from roughly S. Brunswick to the Lawrence Township line.

Chances are that you now have or aspire to that most coveted of all New Jersey zip codes, 08540. Not that this sought after mailing address indicates your precise location. After all, Princeton is primarily just a little university town of 12,000 people, and even with its surrounding neighbor of Princeton Township, its population and square mileage only doubles, take or give a little.

But zip 08540 rambles all over the place, especially up and down the fabulous Route 1 Corridor, invading larger municipalities and causing much gnashing of teeth by elected officials attempting to establish and maintain municipal name recognition. West Windsor, for instance.

Megafirms employing thousands with worldwide interests have no problem leaving New York and other such places for the gently rolling hills and geographical simplicity of former farm land and vacant fields that, when landscaped, lend natural beauty to compliment the magnificence of the mushrooming edifices that house the offices of the 21st century.

The office building boom along the corridor began slowly. Although installations such as RCA and the Forrestal Center were early settlers, the majority of the land on either side of the fabled Lincoln Highway stretch from Trenton to New Brunswick consisted largely of family farms, small businesses such as service stations and diners and scrub woodlands.

In 1949 the first section of the New Jersey Turnpike was completed in Mercer County and planners began to take notice of the fact that this corridor had a potential that could not be overlooked. Centrally located between New York and Philadelphia, easily accessable to train and bus service, handy to international airports at Newark and Philadelphia, and blessed with an able, intelligent and educated pool of workers, U.S 1 had all this and Princeton, too. In the seventies the construction rush was on and by the eighties, buildings were going up as fast as land could be bought and building permits could be issued.

As always, what goes up, goes down, and by 1991 a glut had developed. Shiny , new structures built on speculation laid empty. Huge office buildings remained a quarter full. Rental rates fell and still the suites stayed vacant.

However, by 1995, good times along the corridor bounced back and buildings along the route and near it today are so desirable that a serious shortage of Class "A" space has local realtors hard pressed to meet an ever growing demand.

As explained by real estate specialist Michael Pratico of Richardson Commercial Realtors of Hamilton, Class A space is the most desirable. It usually , offers the best construction in the most impressive buildings found in the most desirable locations.

Pratico reports that the availability of these locations is "very tight." For example, his firm, which generally has available 1/2 million to 3/4 million square feet of space, can now offer only 40,000 to 50,000 square feet. Even Class B space, often located off the main highway is tight, and Class C space with back offices in older buildings is becoming easier to lease, but also in short supply.

Pratico suggests planning at least 18 months in advance if you are looking for U.S. 1 leasing property.

Tom Niederer of Henderson Commercial Real Estate in Princeton agrees. Although his firm concentrates primarily on property actually located in Princeton and its immediate area, he acknowledges that the overall market is tight, including properties in Princeton itself.

"We overbuilt in the eighties," he reflects, "but now we can supply tenants for everything under construction and then some."

According to an office availability review prepared by John Buschman and his associates of Buschman Jackson-Cross and Oncor International with offices in Princeton and other key cities worldwide, the Princeton--Route 1 market consists of 104 buildings containing 7.2 million square feet of space. Occupancy in this market segment stands at a near capacity--96.9 percent. Rental rates average about $23 net for Class A, $20 for Class B and nearly $17 for Class C space. Prices may vary somewhat depending on several factors including bargaining, although deal making requires more skill when a sellers' market such as the one now underway exists.

"Given the small amount of vacant space, leasing activity will be at a lower level in 1998 unless it is in build-to-suit or spec construction," Buschman said.

"We expect rental rates to increase in 1998 perhaps by as much as 15 percent. Absorption will again be positive, but at reduced levels because of lack of supply."

There are five Mercer County submarkets surrounding the Route 1 corridor, and all are also prospering. The markets are Turnpike Exit 8A, Hamilton--Windsor, Route 206 Corridor, Trenton and Ewing-Lawrence. The 155 buildings in these communities total 7.4 million square feet of space and have an occupancy rate of a very healthy 89 percent.