The economy is great. Retail is blossoming. Tech is rolling along mightily. Disposable income is being disposed of as if Wall Street financiers hadn’t bent the world over the stall of a prison shower.
You just have to be in Princeton to see it. While the world still reels from the sting of its latest economic pandemic, Princeton (particularly downtown) has barely lost a step. Its commercial activity remains vibrant, its downtown shops remain full — there’s even a yards-long waiting list of retailers and restaurateurs looking to move into any spaces that might become vacant — and its surrounding biotech-heavy business base continues to draw new companies eager to attach 08540 to their mailing addresses.
Princeton and its satellites, historically Lawrence and West Windsor, have felt the economic pinch, of course. Gerard Fennelly of the NAI Fennelly commercial realty firm in Hamilton, says that Princeton’s leasing terms have softened some, but remain strong, particularly on Nassau Street, where “the university is there like the Rock of Gibraltar” to anchor the retail base.
It’s a little worse in Ewing, which is trying to position its real estate along Interstate 95 as Princeton’s newest satellite. There Princeton South Corporate Center is struggling through the effects of an intra-company lawsuit filed against Minnesota-based property owners Opus Corp. by subsidiary Opus West, claiming that the parent company siphoned $150 million from its regional underling, and a second suit filed by U.S. Bank, seeking $79 million to repay alleged fraudulent transactions by the company. The result has been slow leasing activity for Princeton South over the past 18 months — it signed only a few new tenants — but there is hope.
Opening just this month is the SpringHill by Marriott at Ewing/Princeton, a 134-suite hotel on four floors on the Princeton South grounds (see sidebar, page 45). This is the second Ewing hotel targeting the Princeton market this year. In January, the 127-suite Element at Princeton/Ewing, an eco-chic hotel catering primarily to business and environmentally savvy clientele, opened just beside Trenton-Mercer Airport.
Spokespersons for both hotels say the access to Interstate 95 and its proximity to Princeton make this sector of Ewing an emerging market. A third Ewing hotel, Hyatt Place, will also cater to business travelers and is expected to open on Scotch Road next month.
Closer to Princeton, office leasing has ignored the doom and gloom present in other Class-A markets. Particularly impervious is Brandywine Realty at 2000 Lenox Drive. The property managers for the Lenox Drive complex have closed numerous deals in the past 12 months, luring financial giant Wells Fargo and cementing longterm leases with companies such as law firm Fox Rothschild and government accounting services firm GS1.
George Sowa, who oversees Brandywine’s New Jersey and Delaware portfolios, credits good tenants, good location, and good support from Lawrence Township as reasons Lenox Drive has done so well lately. Good tenants tend to draw quality tenants to a business park, he says.The location, accessible from Interstate 295 but “without the Route 1 traffic,” is an obvious draw as well.
Sowa says that it has been client retention more than new signings that has carried Brandywine through at Lenox Drive. The difference from a year ago, he says, is that commercial clients then were looking for shorter-term leases — typically a sign of recession-induced nervousness — whereas now they are looking further into their own futures. Fox Rothschild and GS1, for example, have signed leases for at least another 10 years each.
Lenox Drive rents about 90 percent of its 800,000-square-feet of space. Sowa says the site has the capacity for three more buildings, now that 1200 is up and running, and that at full build-out, the site would offer 1.1 million square feet of office space.
Matt Malatich of Hilton Realty, based at and property manager for 902 Carnegie Center, says that service businesses catering to Princeton’s clutch of professionals and major companies long ago realized the value of being here. The building is mainly occupied by financial companies, pharma-related firms, and law firms looking for one thing in particular to accent the prestige of the Princeton name — curb appeal. Companies like Wilmington Trust or Raymond James, Malatich says, want a place that’s visible, spacious, easy to get to, and offers nice amenities.
The appeal seems genuine, as 902 recently reached full occupancy. Hilton recently signed three leases to fill the last available spaces: Idis, a U.K.-based consulting company that partners with pharmaceutical and biotech companies, recently leased space on the first floor; law firm Goldberg Segalla has leased two units on the first floor; and Kremers-Urban, a specialty generic drug manufacturer and subsidiary of Belgium-based UCB, will be fully moved into space on the third floor by June.
Full occupancy took just a little more than two years. The building opened officially in the summer of 2007 when brokerage house Stifel Nicolaus & Company signed the first lease. Stifel’s move-in,however, was before 902’s amenities were all in place. Malatich attributes early interest in the building’s proximity to downtown Princeton and to princeton Market Fair, but admits that the amenities help.
Amenities also contribute to Lenox Drive. Sowa says the park’s three cafes, two fitness centers, volleyball courts, and its direct link to the Lawrenceville-Hopewell Trail, are major factors in many company’s decisions to stay.
The newness of the building helps too, he says. Companies like new buildings because there are fewer maintenance issues and spaces can be more customized. But they can be more expensive, too. Asking rents at 902 Carnegie are about $34 per square foot, Malatich says. In similar area office parks, asking rents are about $24 per square foot. Still, he says, companies have shown a willingness to pay for it.
Downtown Princeton has shown almost supernatural resilience. University capital projects, commercial realty sales, and investment continue unabated. The most recent major deal in the downtown market occurred in December when investors from Hamilton paid almost $6.9 million for 14,000 square feet at 80-84 Nassau Street. That’s $491 per foot.
Up the street, at 255 Nassau, the former Olive May market and West Coast Video sites could be the next properties on the list. According to Linda Fahmie, owner of ROI Properties and an agent for Keller Williams’ Princeton office, says these sites have stirred much interest among potential developers.
Ideas for the property include subdividing the space into units of less than 5,000 square feet for mixed use (retail and light office) and tearing everything down and rebuilding from scratch.
In an E-mail, Fahmie writes: “We have significant interest from companies for retail space less than 5,000 square feet, contiguous office space of 5,000-plus square feet, and several AAA national companies.”
Beyond what to do with the buildings, parking is a major concern for the area. “Though the building is empty, the parking lot is filled to capacity daily,” Fahmie says. ROI’s concepts include several designs that offer onsite and even underground parking, but Fahmie cautions that such ideas are only in the design stage.
The level of interest surrounding this property is indicative of Princeton’s wealth. “The economy doesn’t affect the level of wealth of this town,” Fahmie says. “Not to the degree it affects other towns.” For Princeton to lose $1 million is not as big a deal as Trenton losing the same amount.
The university alone generates nearly $833 million a year to Princeton (and about $2 billion statewide) as a tourist destination, Fahmie says. Roughly 750,000 people visit the university every year. Those people stay in area hotels, shop and dine in downtown establishments, and see shows at McCarter and other theaters.
The university also enjoys the benefit of a $12.6 billion endowment (according to reported 2008-2009 figures from the school). Fahmie says that Princeton remains one of the few colleges not to stop its $300 million capital improvement plans since September, 2008.
Then there is the braintrust. As an Ivy League school, Princeton University obviously draws interest from some of the world’s brightest young minds. But once college is over, young professionals tend to stay here, hoping to tap into the high-tech industry along Route 1. And if they didn’t go to school here, they come with their degrees, for the same reason. As a result, Princeton has the highest concentration of biotech professionals in the U.S.
And apparently the region is bracing for more. Malatich says Hilton Realty is in the early stages of a new building, 300 Carnegie Center, which, if built, would be the area’s first office building construction project to break ground in more than four years. Three office parks, 902 Carnegie, Princeton South, and University Square at Route 1 and Alexander Road, finished in 2007, but the last sat dormant for more than two years until Otsuka Pharmaceuticals signed a long-term lease last summer. That building is still unoccupied, but work on Otsuka’s space is expected to be completed by summer’s end. Axis Reinsurance, a Maryland-based firm that signed University Square’s second lease, also is expected to move in this year.
According to Tom Romano of Newmark Knight Frank’s Carnegie Center office, “there is a good amount of interest in that building,” though he could not elaborate.
As for 300 Carnegie, which would be just to the left of the Bank of America office, the parcel represents one of the few plots of land left on which to build. Malatich says Hilton has received approval on the project and is gearing up to submit site permit plans. “We’re not going to build on spec,” he says. “The issue is timing.”
Malatich says he has heard some general interest in the idea for a new property, but that groundbreaking is still a long way off. If built, the space would be a three-story, 90,000-square-foot, LEED-certified Class-A building.
Malatich reminds that much of the activity in the Princeton office market, however, is lateral. New companies are starting and moving in, but a significant number, he says, have changed addresses because their leases have ended and they were looking for better deals on similar spaces.
The same holds true for the area’s beleaguered industrial and warehouse market, which has taken the worst hammering of all sectors in the past year and a half. At Exit 8A in Cranbury a mass exodus of industrial tenants inflated the vacancy rate to as high as 30 percent, the worst in the state except for the northern Turnpike/Parkway area. However, according to a recent report by CB Richard Ellis, the past months have shown the industrial market here has leveled off.
According to the report, during the first quarter of 2010 average asking lease rates for New Jersey industrial space dropped for the eighth consecutive quarter, to $5.50 per square foot. When adjusted for inflation, that’s the lowest rate since 1988. Yet the first quarter’s 5-cent dip represents the smallest margin decrease in more than a year. Thus, while the market has not yet shifted, it has reached what the report terms “an inflection point.” CBRE optimistically claims “asking rents will certainly begin to rise as owners become more opportunistic themselves. For occupiers who have been waiting and watching, this appears to be their time of opportunity.”
Romano, whose firm handles office properties from the Exit 8A market to Trenton, says that in general, interest and activity near Cranbury has picked up. Like Malatich, Romano says that much of the activity in the 8A and Princeton markets is being generated by companies weighing their options as their leases expire. That urge to explore counters the tendency businesses had to entrench in 2009 to ride out the storm.
Romano also credits the pending opening of two state-of-the-art hospitals, Princeton Healthcare’s 636,000-square-foot medical center in Plainsboro, and Capital Health’s 656,000-square-foot center in Hopewell. Both are expected to be completed by 2012.
So if we’re not out of the woods yet, the path ahead has fewer weeds.
“Hope has permeated the market,” Romano says. “The dynamics for recovery are definitely here.”
Hilton Management Co. LLC, 902 Carnegie Center, Suite 400, Princeton 08540; 609-921-6060; fax, 609-921-0939. Home page: www.hiltonrealtyco.com .