by Aubrey Haines
When people hear the word infrastructure, they think of roads, bridges and power lines. Every day we use the roads, and bridges to travel to a sometimes overlooked but arguably more important element of our infrastructure — our office buildings. I say that our offices are more important to us because we spend far more time there than we do travelling to and from them. While at work the air we breathe, the light we see, our productivity, and the interactions with other people are all impacted by the quality of the buildings we occupy.
In the Princeton region, very few buildings have been constructed since the Great Recession. Only 12 percent of the space in the market has been built to the most modern standards. Compare that to the buildings completed in the 1980s and early 90s. The older stock of buildings was built when energy costs were less than half of today’s prices (adjusted for inflation). The older buildings have terrible insulation, and the air conditioning and heating (HVAC) systems are much less efficient. Many have single-pane windows. Moreover, the favorite energy-efficient technique that engineers of that era employed was to seal the building windows and reduce fresh air coming into the space, reducing the oxygen in the space. Among commercial tenants, the number one complaint is HVAC problems.
Today’s office infrastructure incorporates abundant natural light, fresh air, and reduced indoor air pollution from construction materials. Moreover, the HVAC controls in many new buildings allow occupants to adjust the temperature in their space with much greater precision. LED lighting is not only more efficient, but these fixtures produce a light profile that is closer to the light produced by the sun and are much more pleasing to the eye than older incandescent lighting. With adjustable work surfaces and glass walls, the space is more attuned to the comfort of employees that occupy the space. With record-low unemployment, most companies recognize the need to have great offices that will attract the best and brightest employees.
As a result, the vacancy rate in new buildings is much lower than the rest of the market. And the rental rate is (understandably) higher. Since speculative construction of new buildings is not happening any time in the foreseeable future, Class A tenants are competing for a limited supply of premier spaces. Alternatively, large tenants that plan ahead can arrange for a developer to complete a “build-to-suit” for them. We have represented several companies and developers in these transactions over the past decade and have found that to be a great way to get a tenant into more productive, modern space that will work for them for many years to come.
Aubrey Haines is CEO of Mercer Oak Realty. He has been advising clients in the Princeton Office Market for over 30 years. Mercer Oak, Princeton Property Partners and Princeton Property Management provide a complete suite of services to commercial real estate clients.