This article was originally published in the April 2018 Princeton Echo.
The Princeton real estate market reflects the strength inherent in a region supported by several relatively stable global industries. Foremost and most influential are the pharmaceutical/biotech and the financial services industries. As such Princeton is less affected by the economic vagaries that often put less robust regions through larger cycles of growth, contraction, and stagnation.
Although mostly stable, the Princeton-area commercial real estate market’s biggest challenge, particularly with office and lab space, is in attracting new tenants from outside the area. Predominantly commercial activity is restricted to current tenants either renewing their leases or realigning their space usage with their current needs or future projections. The result of this office space shuffle is that vacancy rates have contracted slightly but still remain around 17 percent overall.
The biggest impact in the area’s commercial profile is the shift in how pharmaceuticals conduct business. The industry is shifting away from monolithic research facilities and is outsourcing their discovery process to smaller, more nimble biotechs, by either licensing compounds in late-stage trials or by buying the companies outright. What’s left of big pharma’s original research is relocating to where the talent pools are, areas such as Cambridge, MA, and California’s Bay Area. This trend is starkly illustrated by Bristol-Myers Squibb’s vacating its 1.1 million square foot lab space in Hopewell in 2020.
As big pharma reduces its space needs, small or mid-size pharma and biotechs, many of foreign origin, are taking more aggregate space, but in smaller individual amounts. Most of these leases are for office use only, for executive, marketing and sales teams, or small research labs of 5,000 to 10,000 square feet.
Along with the shift in big pharma’s model is the adjacent growth of shared lab space and incubators that target startup ventures and small growth companies.
Princeton University and BioLabs of Cambridge are the big proponents and trend shapers in the area. The university has recently opened a 31,000-square-foot shared lab space in Princeton Forrestal Center. They have also invested heavily in community entrepreneurial efforts, supplying space, mentorship and funding.
In Princeton’s central business district the financial services sector has a dominant influence on the commercial real estate profile. With a wealthy demographic, Princeton has attracted a fairly diverse complement of money and wealth managers who want to locate convenient to their current and prospective clients. Although not typically large consumers of office space, the financial services sector is very stable and predictable.
Two examples, Glenmede Trust and Bryn Mawr Trust, have both recently signed long-term leases at 47 Hulfish Street. Bedrock firms like these are anchor tenants and attract smaller financial firms that value and appreciate the proximity and association.
Possibly the biggest attraction for commercial office users in the downtown Princeton area is an intangible: the live/work/play dynamic. Often a significant component to a business transaction is the chance and casual interaction that can happen on the street, in a restaurant, or standing in line for coffee. That small town charm of old remains alive and well in Princeton.