The following report has been excerpted from the July “Princeton Office Space Report” prepared by NAI Fennelly, the commercial real estate broker covering central New Jersey since 1986.
The future is bright for Princeton. Having one of the fastest computers in the world at Princeton University, extensive research in photonics and self-driving automation, supported by intricate software research and developments in engineering and biotechnology, Princeton is continuing to attract some of the greatest minds in the world.
The Princeton office economy, for the first half of 2017, replicated the first half of 2016. Companies grew across the board, producing 452,000 square feet of corporate growth, lowering the vacancy by one quarter point. Oil pricing down to $46 per barrel, interest rates flickering around 4.4 percent, and unemployment at a structural number of 4.3 percent has helped business leaders plan for and implement long-term growth strategies.
As technology is being fully integrated in all aspects of business, cloud computing is giving companies a better forecast on how much long-term space they will require. With this long-range understanding and with a low-interest rate environment, many small and medium-sized companies turned to owning office buildings to control fixed costs.
This current office real estate expansion is changing the demand for office space to be for smaller spaces (average of 4,233 square feet of growth per transaction), flexible open layout of space, advanced technology (cloud adoption), and virtual assistants will continue to lower the average size transaction.
International pharma operations find Princeton appealing, including Novo Nordisk (Denmark), Solvay (Belgium), Taiho (Japan), NEC (Japan), Sandoz (Germany), Sun Pharma (India), Evotech (Germany), Dr. Reddy (India), Aurobindo (India), and Otsuka (Japan). U.S. pharmas, including Bristol-Myers Squibb, Janssen, Integra Life Sciences, and Advaxis, also call Princeton their home.
Princeton’s advantage is that it is a major melting pot of the world and the center of some of the most dynamic research and scientific minds in the country. This has allowed Princeton to continue to attract scientists, both nationally and globally, who are looking to create innovation who will change the future of technology and science, and this will continue to bring new business to the region.
Over the next 12 months Princeton should continue to experience an average growth of 1,000,000 square feet of office expansion, offset by consolidation and relocation movements (for 2017 an estimated 350,000 square feet).
Notable in the business category was Miami International, expanding by 30,000 feet at 7 Roszel Road (former Tyco headquarters), GS1 US signing a 40,000 square foot lease “build to suit” at Route 31 (Princeton South), and S&P moving to 1 Independence Way, and taking 75,000 square feet.
Service/Business/Legal/Finance: Law firms reshuffled and restacked their offices including Cooley LLP leasing 15,000 square feet at 902 Carnegie Center, Goldberg Segalla LLP expanding to 20,000 square feet at 301 Carnegie Center and Blank Rome LLP right sizing to 12,000 square feet at 300 Carnegie Center. Build to suits begin with GS1 US going to Charles Ewing Drive and Route 31, Ewing, for 40,000 square feet. Trace Electrical Services and Testing and Allstate Office Interiors are building free standing 15,000 square feet buildings on North Gold Drive in Robbinsville.
BioPharma/Pharmaceutical/Chemical: Pharmaceutical companies face uncertain times. The states of Missouri, Oklahoma, Mississippi, and Ohio are suing Perdue Pharma, Endo Pharma, and Johnson & Johnson based on misinformation and deception to doctors and consumers that opioids pose little risk of addiction.
BMS completed its relocation to its brand-new office, with an open office layout of 660,000 square feet at I-295 and Princeton Pike in Lawrenceville, leaving 777 Scudders Mill in bank receivership. Drug manufacturing is very active as foreign manufacturers see the opportunity to open new facilities in the Princeton area. This includes Aurobindo (India) building 567,000 square feet of office, lab, and drug manufacturing, and Eywa Pharma leasing 62,000 square feet at Cedar Brook in Cranbury.
Medical: Growth in the medical industry showed good results with the changing need for certain types of facilities. Medical continues to go into retail positions with Capital Health and Lab Corp taking 4,500 and 2,300 feet at the Washington Town Center in Robbinsville. The Institute for Spirituality and Health will open at the former two story bank branch at 301 Carnegie Center, and Kane Wound Care purchased 3626 Route 1 in West Windsor from the University Medical Center at Princeton.
Investment Analysis. The investor market was active, but more building sales were made to companies that will actually occupy the building, a trend that started at the end of 2015. The combination of low interest rates, loosening credit, profit taking, and advanced technologies that make it easy to be mobile, give the business owner confidence that the physical plant occupancy can be fixed.
The two investment closings were 3 Independence Way, in South Brunswick, an 111,300 square foot four-story office building built in 1986. This sold for $12 million or 9.2 percent capitalization rate. The second was 103 Carnegie Center selling for $15.9 million or 8.5 percent capitalization rate.
Cenlar Bank purchased 275 Phillips Boulevard for $8.3 million or $115 per square foot. This strategic buy is next door to its current 72,000 square foot operations. One AAA Drive, a 40,000 square foot office building, built in 1990, sold to a user who is going to build a 20,000 square foot addition. This building sold for $4.95 million.
Conclusion: Real estate is changing. For instance, neighborhood shopping centers are attracting more office, service, and medical uses competing with traditional office medical buildings. This is a direct cause and effect of the “Amazon” dynamic changing the bricks and mortar store to a “pick out” and delivery ecommerce experience.
The greater Princeton area will have vacancies of 18 percent or greater for the next 12 months. Corporate supply properties will keep the vacancy elevated. New construction is 281 Witherspoon Street (part of the former hospital grounds), a 22,000 square foot office/retail building in downtown Princeton, and Cabot Centre, Hamilton, an office, bank branch, and 38 apartments. We anticipate, based on a peak demand, that the absorption rate in 2017 will be in the 1 million square foot range.