This story was originally published in the March 2017 Princeton Echo.

Stock photo.

By Peter Dodds and Judson Henderson

We’ve come off a very good year for real estate in 2016. Looking ahead, there’s no reason to think that 2017 will be a bad year for either commercial or residential real estate in Princeton. But we are being cautiously optimistic now that 2016’s growth trends are settling down.

In April the Princeton Merchants Association will host its 2017 Local Real Estate Panel with insights on last year’s real estate market and a forecast for this year.

There will be challenges, of course. The commercial sector could be dominated by questions of sublet space, as vacancies open up. Thanks to new ways of doing business, with flexible schedules and the ability to work remotely becoming more common, for example, companies are freeing up more of their office space and making it available to lease.

Some of our largest companies have recently done this. Near Route 1/Alexander Road, Tyco has sublet 140,000 square feet of Class A space; Berlitz and Mathematica have each sublet 20,000 square feet; and Heartland Payment Systems has sublet 22,000 square feet. Another 375,000 square feet at Forrestal Village has been returned to lenders, as has 450,000 square feet at 777 Scudders Mill Road.

The trend towards available space has reshaped how landlords do business with tenants. Landlords can no longer take for granted that tenants will just stay where they are when there are so many options for them. So landlords are increasingly willing to provide greater amenities, shorter-term leases, and doing tenant financing deals to keep companies in place.

While empty space, whether due to new business practices, low demand, or companies reconfiguring their own space, is not necessarily a good sign in a commercial market, the amount of availability in the market is good news for companies who want to do business in Princeton. The region remains a major draw for companies eager to tap into Princeton’s brain trust and its prestige.

While pharma and biotech are, along with Princeton University, undoubtedly the major industries here, companies also know that Princeton is a diverse market, not hinging on just one industry or entity. Princeton is still drawing a lot of interest and is still a very attractive place to be.

That includes as a place to live. Interestingly, commercial trends tend to be a forerunner of residential trends, and in Princeton and the surrounding areas, we’re seeing similar patterns to what we’ve been seeing in the commercial sector. And we’re as cautiously optimistic in residential as we are in commercial.

Some parts of the housing market here are doing very well and some parts are still in recovery. The dynamic has rewritten what a successful market looks like. It’s probably not wise to try to define a strong market all the way across the board anymore, as the residential market is still fragmented.

That means that different parts of the market will offer a different perspective. Last January, for example, Princeton had 33 properties on the market. This January there were 18. When taken in terms of pure inventory, the numbers are obviously down. But the average sale price per home is up, as are the number of successful transactions.

The point is, real estate is too diverse a market to just look at one metric and use it to make an across-the-board prognosis.

One thing we’re keeping an eye on is the relationship between rising interest rates and the cost of housing. Following the recession, interest rates for mortgages and refinancing stayed historically low for a long time. But now that the economy has improved and unemployment numbers have dropped, interest rates are rising and government assistance programs like HAMP are going away.

What that means for homeowners is that it’s getting costlier to refinance. For prospective buyers, it means that it’s getting more expensive to get a mortgage. At the same time, a healthier market means prices go up. Over the past year home prices everywhere have risen, and that translates into fewer homes on the market.

The result of that is increased competition for homes and the danger of lower and moderate income borrowers getting priced out of some markets. What typically happens when people started getting priced out of buying in a market, but still want to be part of it, is they rent.

Princeton, with a generally wealthy buyer base, has withstood much of the impact of rising rates. Last year Princeton grossed 321 properties — its most since 2005. Forty percent of home deals were not contingent on cash. Meanwhile, in neighboring West Windsor, only 21 percent of deals last year were not hooked to financing.

In Princeton and West Windsor last year, 3 percent of deals involved foreclosure, which is a much better record than some neighbors’. In Hopewell, for example, 7 percent of deals in 2016 involved foreclosure properties; in Lawrence, that number was 11 percent.

Back on the commercial side, it’s worth pointing out that several of 2016’s transactions set record per-square-foot prices. So while there are challenges, there are also several positive signs that Princeton will remain a dynamic and sought-after place to live and to do business.