Cushman & Wakefield recently released its third quarter 2012 report for the Fairfield County commercial real estate market. Although leasing activity, vacancy and overall absorption improved over last quarter, year-to-date market fundamentals, particularly leasing activity, are significantly down from 3Q-11.
Fairfield County’s overall leasing activity (Class A and B combined) through the third quarter of 2012 totaled only 1,454,748 square feet (sf), a 19.1% decrease from the 1,799,069 sf leased in the first three quarters of 2011. In fact, this year-to-date leasing activity represents the second slowest year-to-date period in the last ten years, only surpassing the 1,438,383 leased through 3Q-09. Class-A leasing activity for the third quarter was 520,887 sf, a 33.5% increase from the 390,165 sf recorded last quarter, but a 9.5% decrease from 3Q-11’s leasing activity of 575,733 sf.
"Despite the lackluster numbers, there is significant promise in the future for the Fairfield County office market," said Jim Fagan, senior managing director and market leader of Cushman & Wakefield’s Fairfield and Westchester County regions. "Stamford is being transformed right before our very eyes — new residential projects are thriving in Stamford’s South End, new restaurants are opening, there’s the possibility of ferry service to Manhattan, unique venues like Chelsea Piers Connecticut have opened and our employer base is becoming more diversified with companies like NBC Sports. All of these factors are contributing towards making Stamford a more dynamic place to work.”
Additionally, the private capital supporting these projects is working hand-in-hand with public programs to create a dynamic environment for Connecticut companies to flourish. The most notable is Connecticut Governor Malloy’s “First Five, Next Five and Final Five” program, which is designed to entice and/or retain companies in the state through the trading of economic incentives for the promise of additional jobs. It is pretty remarkable that, in light of the current economic conditions, the state has:
· Been successful in attracting two out-of-state companies: Charter Communications, from St. Louis and Tweedy Brown Company, from Manhattan
· Announced plans for two major build-to-suit projects: Cervalis’s 160,000-square-foot data center at Norden Park in Norwalk and Bridgewater Associates’ possible new headquarters in Stamford’s South End.
Added Mr. Fagan, “While the future is difficult to predict, the signs of a full and robust recovery seem to be on Fairfield County’s horizon.”
At 20.6 %, the Fairfield County Class-A overall vacancy rate remained consistent with both 2Q-12 (20.9%) and 3Q-11 (20.8%). In contrast, the Stamford CBD had the largest decrease in Class-A overall vacancy, dropping 2.5 percentage points from 26.2% last quarter to the current 23.7%. This was due to several large leases signed in the CBD this quarter including Charter Communication’s 73,564-sf sublease at 400 Atlantic Street, United Rentals’ 47,015-sf sublease at 100 First Stamford Place and Tweedy Brown’s 24,421-sf lease at 1 Station Place. Charter Communication’s relocation from St. Louis was part of Governor Dannel P. Malloy’s “First Five” program, now into its second phase of major corporate relocations in the state.
Other significant transactions in the county this quarter were: Bridgewater Associates’ 72,418-sf transaction at 500 Nyala Farms Road in Westport (originally a sublease, now a direct lease); Financial Accounting Standards Board’s (FASB) 70,936-sf renewal at 401 Merritt 7 in Norwalk; and Millennium Partners’ 40,751-sf renewal and expansion at 1700 East Putnam Avenue in Greenwich. Also of note, GRC Realty (General Reinsurance Company) signed its first two new tenants at 600 Steamboat Road in Greenwich: RSR Partners for 9,412 sf and Bessemer Trust Company N.A. for 7,789 sf.
Class-A overall absorption improved this quarter county wide, increasing from the positive 31,555 sf recorded last quarter to the current positive 148,965 sf. This was primarily due to the increased leasing activity in the Stamford CBD, as the Class-A overall absorption in this submarket increased from last quarter’s positive 56,970 sf to the current 126,349 sf. The South Central submarket, however, had the largest decrease in Class-A overall absorption, dropping from last quarter’s positive 68,334 sf to the current negative 8,059 sf. This was primarily due to large blocks of Class-A space added to the market this quarter and a 31.2% decrease in leasing activity from last quarter. It should be noted, however, that the submarket’s Class-A overall absorption did improve from this time last year (negative 16,929 sf).
Class-A overall absorption in the Greenwich submarket improved from last quarter’s negative 68,354 sf to the current positive 32,928 sf. This improvement was a result of 48,618 sf of leasing activity combined with virtually no space being added to the market this quarter. Class-A overall vacancy rates remained stable over the last year, increasing by 1 percentage point from 19.1% at 3Q-11 to 3Q-12’s 20.1%, but decreasing by 1.3 percentage points from 21.4% recorded last quarter. Class-A direct average asking rents also remained stable, decreasing by only $0.47 per square feet (psf) from last quarter.
There was a very large increase in Class-A direct asking rents in the Stamford CBD, growing by $8.31 psf from $43.49 psf in 2Q-12 to the current $51.80 psf. This marked increase is mainly due to the $58.00 psf asking rent recently quoted at 695 East Main, which previously did not publish an asking rent. It should be noted, however, that there remains a fairly large delta in the CBD between the direct asking rental rates and net effective rents, which include landlord concessions, such as free rent and tenant-improvement allowances.
A major decline in Class-A direct average rental rates occurred in the Stamford Non-CBD submarket, where rental rates decreased by $2.14 psf from last quarter’s $39.06 psf to the current $36.92 psf. The primary cause of this decrease was the removal of the previously published rates of ±$52.00 psf at 1 and 2 Harbor Point Square, where more than 180,000 sf are available. The Eastern submarket also experienced a major reduction in Class-A direct average asking rents, where rents dropped from $22.71 psf last quarter to $19.69 psf, primarily due to Trumbull’s quarterly decrease of $7.34 psf. Class-A direct average asking rents remained fairly steady in most other submarkets, fluctuating only by minimal amounts.
FAIRFIELD COUNTY ECONOMY
Employment in Fairfield County grew modestly in the third quarter, led by the professional services, education and health sectors, along with leisure and hospitality. In the three months from May through August (latest available), total employment increased by 3,500 jobs. Since January, the county has added 9,300 jobs, the best performance over a seven-month period since the late 1990s. The main sectors supporting the local economy are professional services, education and health care, which together accounted for nearly 60% of the job growth this year. Overall, the Fairfield County economy is performing in step with the national economy, showing modest growth, a situation that we expect to continue in the fourth quarter.
Fairfield County office investment sales activity came to a standstill, with no significant transactions (20,000 sf and above) executed this quarter. There was, however, a major retail sale this quarter — 987 Boston Post Road in Darien, a 12,996-sf, stand-alone building that houses Brooks Brothers — was sold by DeBartolo Development, LLC to Kleban Properties for $7,500,000 or $577/sf. Brooks Brothers will remain a tenant in the building.
“With interest rates remaining exceptionally low, we had expected to see more activity in the investment sales market this quarter,” said Mr. Fagan. “I have confidence, however, that this market segment will pick up as the smart investor will take advantage of the opportunities in today’s market.”