Fairfield County’s office market closed 2018 with 2.6 million square feet in leasing activity, according to a new report from CBRE. This represented the greatest amount of leasing activity for the region since 2015.
The county’s Central Business District (CBD) zones in Stamford and Greenwich accounted for 51 percent of the year’s leasing activity, even though these areas represent only 28.6 percent of the local total inventory. The Stamford CBD was the leader with 1.1 million square feet in activity, its highest level in 10 years, but this was due to the Charter Communications deal from the third quarter, which covered 532,258 square feet at 406 Washington Blvd. at Gateway at Harbor Point.
CBRE stated the year’s activity was dominated by two six-digit transactions: Charter Communications’ deal and FactSet’s 173,164-square-foot lease at 45 Glover Ave. in Norwalk during the first quarter. In comparison, the year’s third-largest lease — the 93,899-square-foot transaction for Reed Exhibition Cos. at 201 Merritt 7 in Norwalk — seemed rather modest in comparison.
“It’s been a while (since) we’ve had multiple deals of that size,” said Tom Pajolek, executive vice president at CBRE’s Stamford office, referring to the Charter Communications and FactSet leases.
Newmark Knight Frank (NKF) also issued a 2018 office market report and noted that Fairfield County saw a significant uptick in what it dubbed as smaller-sized “bread and butter” leasing activity, particularly involving deals under 5,000 square feet. NKF determined that 273 leases for space under 5,000 square feet were signed last year, compared to 233 deals in 2017. There were also 120 deals in the range between 5,001 and 25,000 square feet last year, NKF added, which was eight more than in the previous year.
Tim Rorick, senior managing director for NKF, said that one office space trend that continued to reshape the market was the popularity of Norwalk’s SoNo area for smaller tenants. Rorick observed that these tenants were looking into “more boutiquey office buildings in SoNo,” but the availability was tight in a neighborhood that is better known for its eateries and boutiques than its corporate environment.
“50 Washington St. is the only institutional office building within walking distance,” he said. “And the Lock Building is fully leased. But go up to Connecticut Avenue and there is 30 percent vacancy.”
The CBRE report also determined that Fairfield County ended 2018 with 113,000 square feet in positive absorption, marking the first time since 2015 there was a positive year-end figure. Only two submarkets wrapped up 2018 with negative absorption, Stamford’s non-CBD and Central Fairfield, which CBRE attributed to large corporate tenants leaving their properties and offering the spaces for subleasing. Central Fairfield recorded 575,000 square feet in leasing activity, but 46 percent of that figure was the result of two deals, the aforementioned FactSet and Reed Exhibition leasing transactions.
The overall weighted average asking rent was $32.15, up 1.8 percent from one year earlier.
Two of 2018’s largest deals took place in a single building in the county’s smallest city: R.D. Scinto’s 6 Research Drive in Shelton, which saw the 55,186-square-foot lease renewal for Edgewell Personal Care in the first quarter; and the 47,765-square-foot lease renewal of Survey Sampling Inc. in the second quarter.
“Shelton is very, very tight,” Rorick said. “There is a joke that once you put a tenant in Bob Scinto’s building, they never leave.”
Rorick also noted that 2018 saw a new push to remove older office properties from the market. This will ultimately cover the removal of 1.3 million square feet of space, with the bulk of that statistic centered in Danbury’s 1.2 million-square-foot Matrix complex that was purchased by Summit Development in October for repurposing as a mixed-use development encompassing retail, luxury residential units and some small office space.
“Taking the Matrix off the market removes 30 percent of the Danbury office market,” Rorick said. “It was a purpose-built headquarters, but it was confusingly built in pods. Now, Danbury will be a tight office market.”
Rorick added that the owners of office properties built in the 1970s and 1980s will need to consider repurposing their buildings as today’s tenants are more focused on new buildings, particularly in urban settings.
“Look at the dynamics of the market,” Rorick explained. “The desire in the 1980s was for tenants to move out of New York City to Connecticut, because most of the decision-makers lived out here. Now, the tables turned — employers are following the labor pool, which happen to be young millennials who want to be located in downtown urban cores with lots of activity, nightlife, restaurants and retail. There is a lot of demand in the urban core.”
Looking ahead to 2019, Rorick forecasted a continuation of the trend of bringing a more professionally diverse tenant base within the county.
“In 2017, the TAMI (technology, advertising, media and information) industries had 500,000 square feet in leasing activity, while in 2018 they leased 800,000 square feet,” he said. “We are not as reliant on the FIRE (finance, insurance and real estate) industries anymore.”
And CBRE’s Pajolek promised that there were a “couple of large deals in the wings” awaiting a formal announcement, and he believed the local economy will help fuel near-future growth.
“With the labor market as tight as it is, it’s hard to imagine how anyone could hold back,” he said.