Princeton, NJ - Office Market Update

May 3, 2023

For the past three years, the office market has been on a downward trajectory with record levels of vacancy and a palpable uncertainty about the future. There are legitimate reasons to be concerned as a landlord, but real estate is hyper-local, and the national headlines do not hold true for every market. One market that has remained stable and even benefited in some instances from the market changes is Princeton, New Jersey. Vinny DiMeglio, Corporate Real Estate Advisor, Senior Vice President at JLL, gives us the rundown on the Princeton office market. DiMeglio has been representing both tenants and landlords since 2009, bringing an experienced perspective to the Princeton office landscape.

Why Princeton?

Princeton, New Jersey, lies equidistant between New York City and Philadelphia and has acted as a landing place for many companies that desire to be near both major cities while enjoying the many benefits of a bucolic setting. It is also home to the prestigious Princeton University and neighbors Rutgers University in New Brunswick, and TCNJ is in Ewing, NJ. The talented labor pool has attracted venture capital, law, and life science firms. Princeton University alone generates $1.58 billion in economic output and employs nearly 7,000 people. In addition, Princeton has a significant pharmaceutical and bioscience presence. DiMeglio states that many of these firms expanded during the Covid Pandemic, eating up vacancies and maintaining deal flow. Just recently, DiMeglio and colleague Erin Moran represented Bergman Real Estate at 500 College Road East on a brand new 27,000 SF lease with Accurant Biotech. Last year was one of DiMeglio's busiest years to date, but now the market has taken a step back as companies face looming economic pressures.

Market Overview

The Princeton office market totals 20.9 million square feet and has a direct vacancy rate of 18.9% and a total vacancy rate of 23.6%. Compared to the State of New Jersey, with a 20.7% average direct vacancy rate and a 25.8% total average vacancy rate. The average market rent in Princeton as of Q1 of 2023 was $30.30 for Class A and $23.26 for Class B assets.

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According to DiMeglio, the flight to quality remains valid, with most leasing happening in Class A assets. "There's no B building where rents are going up in this market; Class B rents have been the same for 30 years. There's been absolutely no appreciation in value. On the contrary, Class A rents have increased, so those owners are seeing the benefits," DiMeglio says.

The most desirable sub-market in Princeton is the 3-mile stretch from Carnegie Center to College Road, home to around 50% of the entire market. Carnegie Center is a 560-acre office park totaling 2.3 million square feet of Class A suburban office buildings. Boston Properties acquired the park in 1998 and currently owns 16 out of the 19 properties. It is home to major pharmaceutical companies, accounting, and law firms with rent in the mid $30 range.

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Still figuring it out

Even three years after the pandemic, companies are still juggling work-from-home and hybrid employee demands. Even through the uncertainty, the market has yet to fall out or "crash" in the instance where tenants give back enormous amounts of space. One can predict the fallout hasn't happened because employers desperately want employees back in the office. As of Q4 of last year, U.S. Employee productivity levels were 1.70%, well below the long-term average of 2.16%. "The longer it goes before we figure out what space looks like, the more opportunity it gives employers to rethink what they want to do; it gives employees more opportunity to push back," DiMeglio stated. While the holding period benefits Class A and trophy space, there are significant concerns for B and C class space as landlords cannot justify renovations with their current income.

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“The rest of 2023 is going to create some challenges for many office Landlords. The ones that focus on their niche and wholly understand their value proposition are going to be the ones that make it through a potentially strenuous period.” - DiMeglio
Re:Cap Key Takeaway

Princeton's office market stands out because of its consistency. The city planners have done a phenomenal job separating office, industrial, and retail. Driving through, you can understand the town's identity, which makes it an attractive place to live and is why many employers choose to have an office there. The future of the Princeton office market remains positive, as it has a large amount of Class A space and is supported by the rapidly expanding Life Sciences industry.

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