Bristol Myers Squibb made several adjustments to its real estate portfolio, including shedding lab space locally and adding space in Cambridge, MA. However, the biggest deal was the completion of a new 600,000-square-foot office building in Lawrenceville – or about two miles from the company's headquarters in the greater Princeton metro market.

The greatest amount of office expansion last year came from the service/business/legal sector, with 324,577 square feet, overtaking pharma as the expansion leader for 2017.

In terms of vacancy rates and rental rates, the downtown Princeton submarket, which is both small and unique, had the lowest vacancy rate of 6.1 percent and a wide range on rents, from $30 to $45 per-square-foot. The Route 1 submarket, which has about 40 percent of the overall supply and 54 percent of total demand from Princeton's 25 million-square-foot office market, ended last year with a vacancy rate of 21.47 percent and rents between $22 and $37 per square-foot. Class A rents have increased 5 percent during the recent 24 months.

The Cranbury submarket, with its overall access to the New Jersey Turnpike and proximity to New York or South Jersey, had a vacancy rate of 21.1 percent at the end of last year, most of it in biology lab space. Cranbury rents have a similar range depending on whether the space is lab or office space, from $19 to $30 per foot. The vacancy rate for the Ewing/Lawrenceville (located at the crossroads of NJ 295 and Route 1) submarket ended up slighter higher for the year, at 10.61 percent, in part because five tenants moved from Princeton Pike and Lenox Drive into corporate (office) purchased facilities.

Also, GS1 built its own free-standing office building at Route 31 and 295. Those departures were somewhat offset by the 88,000 square feet Billtrust leased at 1009 Lenox Drive, a move the automated accounts receivable and payments company made to reduce commute times for its employees, many of which come from Pennsylvania and South Jersey.

There were 20 sales transaction of office properties totaling $82 million. Of those, 14 of the sales were owner/occupier, an unusually high number compared with many US submarkets. Yet they were among the smaller buildings as “user sales” only accounted for $23.3 million of the total volume for the year.

Many of those user sale acquisitions were from buyers exiting New York and moving from leased buildings where rents are going up. Most of the owner/occupier purchases featured low capitalization rates of around four percent.

Capitalization rates usually reflect the going-in or first-year yield and the level of risk associated with an investment sale. By comparison, the six investor sales had cap rates from 7.8 percent to 9.2 percent, the latter of which involved the $12 million sale of a four-story, 111,300-square-foot office building located at 3 Independence Way in South Brunswick, part of the Mack-Cali office portfolio.

Over the next 12 months, NAI Fennelly says Princeton should continue to experience an average growth of 800,000 square feet in office expansion (gross absorption/actual leases), offset by an estimated 250,000 square feet in consolidation and relocation movements. Like 2017, leasing activity should be somewhat balanced between class A, B and C office properties.

International and incubator pharmaceutical companies will continue to be attracted to Princeton's office/laboratory property markets in part because the cost of living for executive level and staff positions is much more affordable than other life science centers in the US, including Boston, San Diego, San Francisco and Palo Alto, CA. Princeton also offers central proximity to over 80 million people within a five-hour drive and excellent rail service throughout the Northeast.