Fairfield office leasing declines sharply in third quarter

By Phil Hall

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Tracking the exact level of leasing activity can be a bit confusing, as three major data sources offer three different results. CBRE Group Inc. reported that third quarter leasing activity totaled 482,402 square feet, a 29.1 percent plunge from the 604,219 square feet recorded in this year’s second quarter. Newmark Grubb Knight Frank reported 750,000 square feet in leasing activity in the third quarter, down 27.2 percent from the second quarter. And Jones Lang LaSalle (JLL) said there was approximately 610,000 square feet of office space leased from July through September, a 23.1 percent drop from the second quarter.

“The numbers being down are a little surprising, but it was not unexpected based on the economic climate and the concerns about the election,” said James Ritman, executive managing director at Newmark Grubb Knight Frank in Stamford. “Especially this year. A lot of companies and individuals want to see who is in the White House before making business decisions going forward.”

Yet Edward Tonnessen, managing director at Jones Lang LaSalle, did not see a specific connection between the third quarter’s office leasing volume and the contentious Clinton-versus-Trump election campaign.

“I’m in a business where yield cycles are nine to 18 months long,” he said. “Nothing happens in our world overnight, or quarter to quarter. Our trends reveal themselves over longer horizons.”

One county submarket where leasing continued to be stagnant was Bridgeport, the state’s most populous city.

“There is not a ton of activity in office space” in Bridgeport, said Robert Caruso, senior managing director at CBRE in Stamford. “In the first quarter, there was 5,000 square feet. In the second quarter, 18,300. But in the third quarter, there was so little activity that there is no statistic available. A market like that with so few deals is hard to track accurately. Some larger buildings are owner-occupied, so they are obviously not necessarily leasing a lot of high quality space out.”

Caruso added that leasing has picked up in other areas of the eastern Fairfield submarket. “There have been a lot more deals than they had been doing,” he said. “For leasing velocity, there was 35,496 square feet in the second quarter and 136,114 square feet in the third quarter.”

Tonnessen observed that the eastern county’s gain came at the expense of Danbury in the north. “Route 8 at Shelton has eclipsed Danbury as the value submarket in Fairfield County,” he said. However, with companies such as Wells Fargo and Praxair signing leases this year at office buildings in the city, “The good news is that Danbury dodged the bullet. The bad news is that there is still too much vacant space in Danbury. The old Union Carbide facility—now called the Matrix Corporate Center—is basically empty.”

In third-quarter leasing in Danbury, Odyssey Logistics relocated and leased 22,208 square feet at 39 Old Ridgebury Road, while PlusMedia LLC renewed its 10,860-square-foot lease at 100 Mill Plain Road.

Caruso at CBRE said 92,782 square feet of office space was leased in Danbury in the second quarter, compared with 22,200 square feet in the third quarter.

The largest third-quarter Fairfield office deal was in Norwalk, where Priceline.com renewed for 69,882 square feet of space at 800 Connecticut Ave. In another notable deal, Aon Hewitt subleased 31,674 square feet from GE Capital at 201 Merritt 7 in Norwalk.

In the Stamford Central Business District, leasing in the third quarter plummeted 78 percent from the third quarter of 2015. Yet outside its downtown business district, Stamford saw a nearly 81 percent year-over-year spike in leasing to more than 160,000 square feet of office space.

Still, one of the largest Fairfield leases in the third quarter was signed in the Stamford CBD — Johnston Asset Management’s new 12,476-square-foot lease at 300 Atlantic St. But available office inventory and timing might have limited leasing activity in the downtown area.

“Sometimes deals don’t get done,” said Ritman. “They may be completed in either the fourth quarter or the first quarter. Also, a lot of leases were up last year.”

“It is easy to misunderstand this submarket,” JLL’s Tonnessen said of Stamford. “There is a deceptively high vacancy rate, with 400,000- to 600,000-square-foot blocks of space. The typical office user only needs 20,000 to 30,000 square feet, so it is difficult for them to transition in this type of building. The market is actually starting to trend to neutral or landlord-favorable status.”

“In the fourth quarter, we might see some deals clear,” said Caruso at CBRE, including “a pretty good-sized deal in Stamford of over 100,000 square feet.”

The Greenwich office market accounted for 22 percent of all Fairfield County transactions in the third quarter, according to Jones Lang LaSalle. The most notable deals were in the health care sector, with Stamford Hospital leasing 31,362 square feet at 75 Holly Hill Lane and Greenwich Hospital renewing its approximately 15,230-square-foot lease across the street at 500 W. Putnam Ave.

“Greenwich is a positive story with positive absorption,” said Ritman at Newmark Grubb Knight Frank. “I wouldn’t say that its CBD was overly active — there is not a lot of space available, and the space that was did not remain that way for very long. Plus, rents in Greenwich are the highest in the country.”

Brokers said GE’s announcement early this year that that it will vacate its Fairfield headquarters and relocate to Boston has had little impact on the county’s office market.

“I wouldn’t say it was a seismic shift,” Ritman said. “It was more of a PR momentum deflator. The talk about Fairfield County—and Connecticut, in particular — by those outside of the market was based on reading the headline that GE is leaving, which made people think something is wrong with Connecticut. But they didn’t see what is going on in Boston — real estate development on waterfront is very appealing to companies. People heard about it and thought that the wind is not in Connecticut’s sails.”

Tonnessen also noted the lack of impact on office deals from GE’s exit — and its effect on the county’s housing market.

“It brought much more devastating impact to the four-bedroom Colonial world, not so much to the developers of office space,” he said.

Source: Jones Lang LaSalle

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