After an active first half of 1995, the real estate market in the Greater Princeton, N.J., area took a short respite this summer and is in full swing again.are indicating that the level of activity they're experiencing this fall is above that of 12 months ago.
"In terms of vacancy rate, Princeton is ranked in the top four or five strongest areas in New Jersey," says Jerry Fennelly, president of Fennelly Associates Inc., Princeton Junction, N.J. He indicates that the vacancy rate for the overall office market fell to 16.19%, as of June.
"It's creeping down slowly," he adds. For example, the 1994 year-end vacancy rate reached 18.36%.
At least in the Class-A office market, "we're faring better than some of the other areas in the state," says Stephen Segal, president of Stephen M. Segal Inc./New America Network, Lawrenceville, N.J.
"But in the industrial market, we don't have the same quantity of product in Mercer County that you might find in other parts of central New Jersey," Segal adds.
Princeton's office market statistics for the first five months of 1995 reveal an impressive net absorption level of 562,933 sq. ft., completed in 87 transactions and in mostly Class-B buildings, according to a report by Fennelly Associates.
This is the largest amount of absorption occurring in a single half year since 1987, emphasizes the Fennelly report, which covers 12.5 million sq. ft. of Class-A, -B and -C space in Mercer County. In comparison, the overall net absorption level for the first half of 1994 only reached 249,688 sq. ft.
"We've improved dramatically just in the first half," explains Fennelly. Although in the 1980s there was a decent amount of migration to the area, for the last five years the large transactions have been lacking. We have not seen the large transactions, on a net absorption basis, until the first half of 1995. Back in 1987, it was a commonplace event. But, when the recession took hold in 1990, it became a small tenants' market. From 1990 until 1994, the average size transaction was roughly 4,500 sq. ft.
"As we started to creep out of the recession in 1994, the size of the transactions started to get bigger," continues Fennelly.
One of the major new entries into the area was made at the start of the year by Nycomed, a division of Sterling Drugs, which relocated from New York and leased 75,000 sq. ft. of Class-A space at 101 Carnegie Center. And in another largeduring the first half of the year, the Italy-based pharmaceutical firm Bracco SpA signed major leases for two of its divisions at Princeton Forrestal Center in Plainsboro, N.J. Bracco Diagnostics took 55,300 sq. ft. of Class-B space at 107 College Road. The tenant was represented by the Princeton-based Garibaldi Group. Additionally, Bracco Research signed a 22,975 sq. ft. lease for lab space at 305 College Road E. The tenant was represented by Los Angeles-based CB Commercial. Fennelly Associates represented the owner in both of the Bracco leases.
The two buildings where Bracco resides are part of the 11-building College Park complex, owned jointly by Lawrence Zirinsky Associates and Pocantico Associates, both of New York. Princeton-based National Business Parks, the managing arm of the partnership, initiated an aggressive leasing campaign at the start of the year, which brought the 815,000 sq. ft. College Park complex to almost full occupancy.
"We knew we had no option but to make every lease," says Vince Marano, COO of National Business Park.
Along with the Bracco deal, a number of other major leases were signed during that period. Rhone-Poulenc, part of the French conglomerate, leased the 54,000 sq. ft. 103 College Road E. in its entirety.
"The building was empty as of the end of January and fully occupied by March 15th. They're a new entry to Forrestal," explains David Knights, director of marketing for Princeton Forrestal Center.
In all, over 200,000 sq. ft. of space was leased at College Park during the first three months of the year. Other new firms added to the corporate roster are Marshall & Swift, Sieget & Siegel, Princeton Management Resources, FMC Corp. BFI and The Hawver Group.
The 1,750-acre Princeton Forrestal Center, Princeton University's mixed-use project in Plainsboro, N.J., "is largest entity in the market with the most square footage," says Knights. "Between ourselves and Carnegie Center, we lead the market in terms of activity."
The proof is the drop in the vacancy rate over the past year. Fennelly says that "pockets of space" still exist at Princeton Forrestal where "they have the capability to build another 125,000 sq. ft."
"So where is the vacancy rate?" asks Fennelly. "It's going to be around 15% to 16% by the end of the year, depending on the absorption level this quarter."
The second half of 1994 experienced significant leasing activity, and if history repeats itself this year, "you're going to see a dramatic decrease in the vacancy by June of 1996, to the point where the supply factor will be limited," Fennelly says.
In fact, today, tenants requiring over 35,000 sq. ft. are finding only a limited supply of quality buildings in the area that they can readily lease.
"The build-to-suit market will probably start in the next 12 to 24 months, on the larger scale," says Fennelly. "Believe it or not, we are currently seeing build-to-suit on the smaller level."
The Boy Scouts of America and Hann Financial, for example, are building 10,000 sq. ft. sites in the Matrix Development Park. Corporate downsizing has had a major affect on the amount of product available.
"There has been a lot of corporate downsizing, but how that trend is expected to continue remains to be seen," says Segal. "It may be waning because the major corporations that have been following that track have already downsized or are in the process of it. I think you really have to watch it for the next year or so to see how that trend continues."
Fennelly's report shows that the increase in market activity has helped to shorten lease periods and tighten rents. However, Fennelly warns that additional supply that hits the market from further corporate consolidation will stabilize rents at current levels.
"Class-B vacancy is still elevated, and that's where the market got really hurt," Fennelly says. "Class-A rents, depending on workletter, are around $18.75 to $20.50 per sq. ft. Class-B space is $16 to $18.50 per sq. ft."