The office market was not nearly out of the woods by 2010, but Hilton Realty Co. had plenty of reasons to act when it broke ground on its newest building in the Princeton area.
The firm was seeing signs of a turnaround, with an uptick in leasing and full occupancy at its two Class A buildings alongside its development site in West Windsor.
Not to mention, no one else was building anything in the market.
"It seemed like a good time to move forward, with no competition," said Matt Malatich, Hilton's assistant director of leasing. "And with all the other factors, we decided to go for it. We sort of crossed our fingers and hoped that the timing worked out properly."
Hilton started the 88,000-square-foot building on a speculative basis — and its risk has paid off. Just months after opening, the building at 300 Carnegie Center is nearly 60 percent leased, with a mix of banking, financial services and technology firms.
Experts say that's no surprise for the Princeton submarket, one of the healthiest in New Jersey and a standout among suburban office locations. And these days, it's a place where tenants are growing thirsty for new space, driving what is effectively the only new office construction in the surrounding region.
"It's different than the other markets, and it's always in the top two or three in terms of pricing and tightness," said Milton Charbonneau, a senior vice president with Cassidy Turley.
So as demand builds, he said, there is "a growing urgency" among small and midsized users to engage developers with shovel-ready sites.
That's resulting in projects such as Roszel Square in West Windsor, a 100,000-square-foot complex being built by Gottesman Real Estate Partners and Mountain Development Corp. The law firm Hill Wallack, which will relocate from within the township, will anchor the first of two buildings in a 43,500-square-foot space set to open next year.
While several law firms call Princeton home, the area is dominated by tenants in the life sciences, financial services and media sectors, said Aubrey Haines, CEO of Ewing-based Mercer Oak Realty. That means the vast majority of the submarket "is occupied by companies who pay their people very well. And as a result, they have consistently been interested in only the Class A environment."
It is in fact a tight market for high-end office space, according to data supplied by Mercer Oak. The firm said Class A vacancy was just under 12 percent in a total inventory of about 10 million square feet, not counting corporate-owned spaces.
Statewide, Class A vacancy is about 25 percent, according to the brokerage firm Jones Lang LaSalle.
As for why companies gravitate toward Princeton, "it's because of the proximity to everything," said Thomas Romano, executive managing director with Colliers International's office there.
That includes Princeton University and the amenities of downtown Princeton, a skilled labor pool and a location that puts firms directly between New York City and Philadelphia, he said. Not to mention the quality of life and the prestige of a Princeton address.
All that is a recipe for a submarket that held steady during the recession and came out in growth mode, Haines said. By the end of 2013, the total occupied Class A space around Princeton was more than 9 million square feet, an increase of more than 1.5 million square feet from early 2007, according to Mercer Oak's data.
"We've been in a tenant's market right through the recession," Haines said. "Space is leased, but pretty soon we're going to be in a situation where there are going to be two or three tenants looking at the same space, and the landlord is going to start to have some fun."
That scarcity has made it one of the few areas that can sustain new development, experts said. The Princeton submarket had about 120,000 square feet of office space being built at the beginning of the year, according to Jones Lang LaSalle, accounting for the only new construction underway in a five-county swath of Central Jersey.
That follows Hilton Realty's speculative project completed last year in West Windsor, a rarity in an office sector that is still skittish from the downturn. Malatich said the company was encouraged by the success of its last new project nearby, at 902 Carnegie Center, which completed construction in 2007 and was fully leased by 2009.
He also said it was worth taking the risk to construct a multitenant building of that size, considering the Princeton market is made up of smaller and midsized users. If those tenants "have no other options to occupy a brand new building, where they get to customize the fit-out, you're kind of the only game in town," Malatich said.
The ability to build on a smaller scale was also part of the appeal for Mountain Development, which is making its first foray into the market through the Roszel Square project with Gottesman.
"Having a project that meets the needs of smaller companies — not just very large corporations — it's a good way to be active in that market," said Michael Allen Seeve, president of the Woodland Park-based firm.
Proof of that came in the lease with Hill Wallack, which allowed the team to start work on the 63,000-square-foot first phase of the complex, he said. And Seeve believes the second phase, which calls for about 38,000 square feet, "is an equally good opportunity to pair up with a company that's not a mammoth global enterprise necessarily, but (one) that wants something that you couldn't otherwise do in a build-to-suit."
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The newest addition to the Princeton submarket is Hilton Realty Co.'s 88,247-square-foot building at 300 Carnegie Center, which was constructed on spec and opened last year. These tenants have brought it to 59 percent occupancy to date:
Source: Hilton Realty Co.