Cushman & Wakefield today released its Second Quarter 2010 report for the Fairfield County commercial real estate market. Although there was a decrease in Class-A leasing activity from last quarter, it was substantially higher than last year at this time and there are a number of leasing transactions in the pipeline expected to close before the end of the year.
At the same time, while rents continued to decline, vacancy rates continued to climb and overall absorption remained negative, Cushman & Wakefield sees the market in the “bottoming out” phase with improved fundamentals expected in the not-too-distant future.
Class-A and B new office leasing activity for the quarter registered 653,165 square feet (sf) a decrease of 24.8% over last quarter (868,399 sf). Class-A leasing activity in 2Q-10 was 589,819 sf, a 22.8% decrease from the 764,325 sf leased last quarter, but a tremendous increase from 2Q-09’s 185,545 sf. A significant portion of the Class-A leasing this quarter (±250,000) can be attributed to Starwood Hotels & Resorts Worldwide’s lease at 333 Ludlow Street in Stamford. Other major lease transactions this quarter included: The Nielsen Company’s 55,331-sf lease at 40 Danbury Road in Wilton; Bridgewater Associates’ 16,683-sf sublease at 300 Nyala Farms Road in Westport; and IHS Herold’s 16,000-sf lease at 200 Connecticut Avenue in Norwalk. The Starwood deal represented 42.4% of all the Class-A leasing in the county this quarter.
The Stamford Non-Central Business District (CBD) was the only submarket to increase leasing activity from last quarter, because of the large Starwood transaction. Class-A leasing activity in the submarket grew from 195,591 sf in 1Q-10 to 262,928 sf this quarter. All the submarkets, except Eastern and Danbury, increased Class-A leasing activity year over year, with the largest increases occurring in the Stamford Non-CBD, having only leased 21,938 sf in 2Q-09 and South Central, which increased from 22,011 sf in 2Q-09 to 147,508 sf.
The overall available Class-A space in Fairfield County decreased slightly from 6.4 million sf (msf) last quarter to the current 6.3 msf, however, it increased from the 5.6 msf available at 2Q-09. Fairfield County Class-A available sublease space (1,168,523 sf) is lower than 2Q-09’s 1,419,021 sf and from 1Q-10’s 1,270,458 sf. At 165,643 sf, Norwalk had the most sublease space added this quarter comprised of Affinion Group’s 115,000-sf sublease at 100 Connecticut Avenue and Webloyalty’s 50,6430 sf addition at 101 Merritt 7. Additionally, 52,000 sf of sublease space was removed from the market at 400 Atlantic Street in Stamford by International Paper.
“The Fairfield County market is in a slow, but undeniable march towards recovery,” said Jim Fagan, senior managing director and head of Cushman & Wakefield’s Fairfield and Westchester County regions. “This recovery will be uneven and it will test our convictions, but it is underway.”
Overall Class-A vacancy rates countywide in 2Q-10 registered 19.3%, up 1.7 percentage points from the 17.6% reported last year at this time and slightly lower than the 19.7% recorded last quarter. The largest increases over the past year occurred in the Stamford CBD at 21.6% in 2Q-10 vs. 18.5% in 2Q-09; Greenwich at 16.5% vs. 13.7% in 2Q-09; and South Central at 18.3% vs. 15.6% in 2Q-09.
Overall average asking rents for Class-A space countywide decreased for the fourth consecutive quarter. At the close of the second quarter, asking rents for Class-A space averaged $33.41 per square foot (psf), a decrease from the $34.94 psf achieved last quarter and from the $37.84 psf average in 2Q-09. This held true in the other submarkets with the exception of Greenwich, Central and Greater Danbury, where the overall asking rents increased. The largest decreases in Class-A overall asking rents occurred in the Stamford CBD, dropping from $43.85 psf last quarter to $41.65 psf, followed by Stamford Non-CBD, decreasing from $35.05 psf last quarter to $33.08 psf.
Direct Class-A asking rents also decreased from last quarter, dropping to $33.64 psf from $34.94 psf. Three submarkets, however, experienced increases in Class-A direct asking rents: Stamford Non-CBD, rising to $33.71 psf from $32.27 psf; Greenwich, rising to $57.56 psf from $55.93 psf; and Greater Danbury, rising to $25.23 psf from $24.55 psf. For Greenwich, this is the second consecutive quarter of rental increases, signaling a continued improvement in the Greenwich commercial real estate market.
Overall absorption for Class-A space in Fairfield County during the second quarter decreased dramatically over last quarter’s positive 23,937 sf, declining to negative 101,313 sf, but improved over last year’s second quarter, which registered negative 210,789 sf. In the Stamford Non-CBD, this is the second consecutive quarter with positive overall absorption of Class-A space and the third consecutive quarter of positive direct absorption of Class-A space.
Mr. Fagan comments, “There are large blocks of available space that remain on the market while being repositioned for re-entry and are, therefore, not yet leasable. As market prognosticators, we’re taking a wait-and-see attitude regarding how these additions will affect the market going forward.”
FAIRFIELD COUNTY ECONOMY
As the national economy shifted from job loss to job growth in the first quarter of 2010, Fairfield County participated in the return to growth. In the first five months of 2010, the county added approximately 2,000 jobs — about half of them in the private sector; the other half in government, partially related to the 2010 Census. Nevertheless, in the key office-using industries (financial, professional services and information), payrolls are up 1,200 jobs or 1.1%, as growth in professional services employment more than offset a continuing decline in financial services payrolls. Overall, Fairfield County appears on track for a steady recovery in employment, similar to that of the rest of the nation. In fact, the Fairfield County region remains healthier than the rest of the country with unemployment at 8.2% compared with the national unemployment rate of 9.7%. This should support improvement in leasing market fundamentals during the second half of 2010 and in 2011.
INVESTMENT SALES
The investment sales market in Fairfield County remained stagnate through the second quarter with only one major office sale in Danbury, CT. The 64,000-sf 101 East Ridge Avenue was sold through foreclosure to Appian Real Estate, LLC and Hunter Gregory Realty Corporation for $2.5 million or $39/sf. We anticipate that there will be more sales in the second half of 2010 as there are eight Fairfield County office properties currently in the pipeline.
“Both sellers and buyers are becoming more optimistic about the viability of the investment market,” said Mr. Fagan. “At the same time, they are both much more realistic in their market expectations. This bodes well for the future.”
Cushman & Wakefield is the world's largest privately held commercial real estate services firm. Founded in 1917, it has 231 offices in 58 countries and 15,000 employees. The firm represents a diverse customer base ranging from small businesses to Fortune 500 companies. It offers a complete range of services within four primary disciplines: Transaction Services, including tenant and landlord representation in office, industrial and retail real estate; Capital Markets, including property sales, investment management, valuation services, investment banking, debt and equity financing; Client Solutions, including integrated real estate strategies for large corporations and property owners, and Consulting Services, including business and real estate consulting. A recognized leader in global real estate research, the firm publishes a broad array of proprietary reports available on its online Knowledge Center at www.cushwake.com.
