Is principal capitalized if it is a possessive noun?

No, the noun 'principal' is a common noun, a general Word for any leading or most important person or thing; any head of a school; any sum of money that is placed to earn interest or is owed as a debt.

The possessive form of the noun principal is principal's.

Example: The teacher sent me to the principal's office.

The Word principal is capitalized only when it is the first Word in a sentence, a proper noun such as a name (as in Victoria Principal), or a specific person's title (Principal Jackson runs my school).

Example: The teacher sent me to Principal Jackson's office.