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PRINCETON, NJ-Throughout New Jersey, businesses are continuing to contract, leaving unprecedented amounts of office space available. Even big pharma, one of the mainstay industries of Central New Jersey, has undertaken mergers and out of state relocations, leaving large amounts of commercial space and thousands of jobs in its wake.

“And since the bottom line for commercial real estate is jobs, the market has been thrown into disarray,” says Vincent Marano, COO of National Business Park, managers of College Parks at Princeton Forrestal Center and the Southgate Corporate Center in Morristown.

To his point, Pfizer Inc. announced last week that it plans to close its Princeton R&D campus. According to a company release, the pharma giant will consolidate to five main research sites in Cambridge, MA; Groton, CT; Pearl River, NY; La Jolla, CA; and Sandwich, UK and three research-oriented labs in San Francisco, Cambridge, UK and Shanghai, China.

So what does this mean for the Princeton submarket, which has traditionally housed a slate of pharmaceutical facilities as well as operations for financial companies such as Dow Jones and Merrill-Lynch? “Many of these companies were de facto run out of Princeton, but as things get more decentralized it doesn’t bode well,” admits Milt Charbonneau, vice president of Colliers Houston & Co. In the case of Dow Jones, the company has already backfilled a good deal of space at its Route 1 location, but Charbonneau doesn’t think pharmas like Bristol-Myers Squibb or Johnson & Johnson will relocate. “I suspect what you’re going to find is that headquarters will still be in Princeton,” he predicts. “J&J and Squibb acquire, they do not get acquired.”

But Merrill is another story. According to Charbonneau, its lease at Scudders Mill Road–the financial firm previously sold the property to Ivy Equities and then leased back for three years–is coming due. “And the word is that Dow Jones’ Hopewell facility could possibly be downsized,” he adds.

However, the Pfizer situation is a bit different, says Charbonneau, because the property is well situated. “That space could sell and go to a mixed-use type of situation.”

For their part, landlords are becoming competitive and extremely flexible in lease negotiations and are offering generous concessions in the effort to keep their building filled. “Rents in Princeton are now averaging in the mid $20s, down from the upper $20s less than 18 months ago,” Marano notes.

And while vacancy factors in Princeton are currently 16% to 17%, well below the statewide average, they still reflect a significant number of tenants lost. “In our business it’s very straight forward–without jobs, there’s no need for real estate,” Marano continues. “So from our point of view, new jobs are the imperative.”

As employment traditionally lags behind other economic indicators, it is likely that the office market will not rebound for at least another 24 to 36 months. “Landlords will need to become even more aggressive in deal making; for tenants, this is a time of unique opportunity,” Marano relates. “I suspect that 2010 will be a carbon copy of 2009,” Charbonneau agrees. “Owners really need to be on their toes and polish the presentation of their buildings as well as the financial parameters of the deals that are shopped to them because there just are not that many transactions.”

Still, Princeton remains the market of choice for many companies. “Princeton has a great labor pool and the upper level management enjoys the lifestyle,” Charbonneau relates. And not all pharma companies are downsizing. Otsuka Pharmaceutical Co. Ltd. expanded into Princeton, picking up space at 100 Overlook Ctr. Meanwhile, the 11-building College Park at Princeton Forrestal Center has attracted tenants including SES Americom, Panasonic, JPMorgan Chase, Drinker Biddle & Reath and Bracco Research.

According to Marano, two fully approved major additions are planned for College Park, including College Park 2, a five-building, office/research center containing 345,000 square feet that is being developed on a 31-acre site adjacent to the existing College Park campus. College Park 3, meanwhile, is planned as a four-building corporate office center on a 47-acre site contiguous to the College Park campus. Both new complexes will be developed on a build-to-suit basis.

Lincoln Equities Group/Meritage Properties LLC’s 482,053-square-foot, three-building American Metro Center at 240 Princeton Ave. has gone from around 40% leased to over 70% occupied in just the past few years. According to Daniel Ackerman, senior director of leasing at Lincoln, while Princeton is suffering along with the rest of the nation, the submarket will always be desirable thanks to its proximity to both Princeton University and Rutgers.

AMC recently added medical communications company MediTech Media to its tenant roster, which includes Consolidated Services Group, Flaster/Greenberg PC, Hase/Schannen Research Associates and Medavante Inc.

Adds Jones Lang LaSalle’s managing director Paul Giannone, the Princeton submarket is the largest in the state with 19 million square feet of office space, 54.2% of which is class A product. He notes that Princeton was one of just three submarkets that recorded a decline in vacancy this past quarter, falling 0.5 percentage points, to 23.5%. Giannone attributes this dip to healthy leasing activity and less space coming back to the market during the last three months.

Princeton was also the most active submarket in terms of leasing in all of New Jersey during the quarter with well over 300,000 square feet of transactions closed, according to JLL. Compared to a year ago, leasing is up 47.2%. Three of the top four deals signed in the last three months consisted of renewals, while there were seven transactions in excess of 10,000 square feet, most notably a 121,990-square-foot renewal by PharmaNet Development Group, Inc. at 504 Carnegie Center.

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