A second company has signed a lease at the yet-to-be occupied RXR building at University Square, the five-story, 313,000-square-foot office at Route 1 and Alexander Road.

AXIS Reinsurance, a specialty insurance company based near Baltimore, announced on January 8 that it will occupy 26,614 square feet on the second floor of 1 University Square in late spring. David Simson of Newmark Knight & Frank’s Rutherford office, which represents the building’s landlord, RXR Realty of Short Hills, said the number of AXIS employees moving into the space is unknown. The floor will be occupied by AXIS’s global accident and health division.

The announcement comes a little more than five months after Otsuka Pharmaceuticals, which now occupies 18,500 square feet at 100 Overlook Drive, signed a 67,531-square-foot lease for the entire top floor of 1 University Square, making it the building’s first signed tenant. It has not publicly said a word about the deal, but Simson said that the company has received its approval from West Windsor Township (the remaining snag in the deal) and is beginning its interior fit-out.

He expects Otsuka, headquartered in Rockville, Maryland, to move in in late spring as well. Otsuka originally was expected to occupy the space in the first quarter of 2010.

No terms have been released, but the building’s average asking rent is $36.50 per square foot.

University Square, which went up nearly five years ago, has been the object of much speculation. For some the building has come to represent impotence in the office market here. And commercial real estate agents had little with which to counter those claims.

RXR, however, sees great hope for the future. “There is no denying that 2009 was among the most challenging years in which to complete commercial real estate transactions,” Todd Rechler, co-COO of RXR, said in a January 11 press release. “Despite this trend, we closed the year with strong leasing momentum within our New Jersey portfolio.”

The firm closed five Class A office leases in 2009, including Otsuka and AXIS.

With two tenants now slated to move in and several more in the pipeline, Tom Romano, who works in Newmark Knight’s Carnegie Center office, calls the AXIS lease “a positive on a lot of fronts” for the Princeton market. While he will not give specifics, Romano says there is considerable activity brewing for University Square, adding that he “wouldn’t be surprised if we had several new announcements this year.”

Micky Landis of Boston Properties in Carnegie Center says that Princeton’s office market, though hurting, is in good shape relative to the rest of the state (see story, page 6). Vacancy rates here hover around 22 percent on average, slightly lower than the average for the 10-county region comprising the central and northern New Jersey markets, according to a report released on January 11 by FirstService Williams of Parsippany.

Landis attributes the stability here to a lack of new construction that would have left a surplus of empty buildings on Princeton’s hands. FirstService Williams adds that shorter-term leases and declining rents combined with generous deals from landlords, have buoyed a soft market by enabling tenants to ride out the down times and not get locked into long leases.

“We are cautiously optimistic that the market is showing the early signs of recovery, but most tenants and landlords have not quite come around yet,” said Matt Dolly, managing director of research and marketing for FirstService Williams, in a statement. “Most tenants are in a position to wait, while others may simply have to, because their businesses are struggling or they are unable to obtain loans to finance a relocation or expansion. At the same time, landlords are being more flexible in negotiations, but expect improvements as 2010 progresses.”

The FirstService report also cites a decline in job loss and expects the demand for office space to follow growth in new jobs.

The AXIS announcement on January 8, however, coincided with a gloomy front page story in the New York Times that pondered the fate of $12.5 billion worth of prime commercial Manhattan office and apartment buildings teetering on the edge of bankruptcy. Commercial rents in Manhattan have dropped faster in the past two years than at any other point in the last half-century, the article stated. Could the Princeton market see a ripple effect?

Romano doesn’t think so. “Most landlords in the Princeton market are strong,” he says. “And most of the tenants in the Princeton market are strong. I don’t anticipate seeing any major fallout.”

Though news outlets such as the New York Times and even Forbes have sounded the alarm on a potential collapse in commercial real estate, some commercial real estate agents have suggested that ad hoc, even on-the-fly amendments to commercial leases are heading off a glut of commercial properties.

Without a certain amount of restructuring, the financial press’ alarm bells will be right on. Even the most optimistic appraisal of commercial real estate’s potential fate, by the Wall Street Journal, paints a future in which hundreds of billions of maturing loans are set to come due shortly, and largely at once.

Extended leases and cheaper rents have become a common practice by commercial landlords who stand to lose significant equity if their tenants are put in the same position as residential property owners were in 2008 and 2009. As adjustable rate mortgages ballooned and came due in large numbers, homeowners faced with mortgages far outweighing the values of their homes simply walked away and stuck lenders with the bill.

Romano says the Princeton market has largely been insulated from such trouble through the strength of its landlords and tenants. But then, Princeton had its share of trouble 20 years ago, when over-building created so much extra space that entire office buildings went unoccupied. The glut, says Landis, caused such a problem that state and federal bailout money was the only thing able to rescue the market here.

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