Declining unemployment and a general stabilization of leasing rates are significant factors in Fairfield County’s commercial real estate sector, according to Houlihan Lawrence’s commercial market report for the second quarter.
Average office rents in the county have remained “relatively stable” for the last three quarters while vacancy has improved, which the realty takes as a sign that fundamentals have regained positive momentum.
Cited as an example of investor confidence in Fairfield’s more urban markets was the June acquisition by Philadelphia real estate investment adviser Rubenstein Partners of the 12-story, approximately 450,000-square-foot Class A office building at 600 Washington Boulevard in Stamford. Built in 2009 to serve as the U.S. headquarters of the Royal Bank of Scotland – whose investment banking subsidiary, NatWest Markets, was the seller – the building had seen a significant exodus of workers over the past few years as RBS conducted a series of layoffs.
Houlihan touted the selling price of approximately $366 per square foot as particularly attractive, considering 2019 replacement costs.
“Buildings close to transportation infrastructure and offering ample amenities such as 600 Washington are attracting investment capital targeting steady and predictable returns,” the report noted. “From a tenant standpoint, location and amenities make these buildings attractive to companies expanding into the region or relocating within.”
The building is about 85% occupied with other tenants, including UBS and Bank of America. Rubenstein plans to convert underutilized areas within the building into additional office space.
Fairfield County retail in aggregate was marked by existing retail tenants closing a notable number of shops, according to Costar data. “Challenges continue, and available data reflects a mix of move-out dates,” Houlihan stated. “Lease rates also weakened during the quarter in response to increased space availability. New concepts continue to be actively leasing space, but their take-up activity has not been sufficiently large to bring the market into balance.”
In Greenwich, an improved lease rate structure that benefits tenants has resulted in a tangible occupancy improvement.
With Fairfield landlords accepting declines in rental rates to hold on to occupancy, leasing volume continues to be healthier and vacancy declines have followed, the report added. At the same time, rapid shifts in consumer preferences and retail purchase habits are continuing to impact the market, meaning that, “at the present time, stability appears hard to attain.”
As previously reported, CBRE said in July that, following a first quarter that saw 725,000 square feet in leasing activity, just 308,000 square feet were leased in the second quarter — the lowest quarterly total for leasing activity in the county CBRE had tracked since the first quarter of 2013.
After a strong first quarter, Greenwich retail owners have again increased their rent flexibility in order to retain and attract tenants, according to Houlihan. “Despite historical stability,” it said, “Fairfield retail at large is struggling to stabilize.”
Meanwhile, the pace of investment sales transactions weakened substantially during the quarter. Even with slightly lower interest rates, international trade disputes and other economic headwinds have weakened investor confidence; as a result, investors and financing partners have been “underwriting current and future real estate investment cash flows with the perspective that a downcycle may manifest itself anytime,” the report said.
Ongoing concerns about the health of the economy and Connecticut’s political and budgetary troubles have all played roles in declining investor enthusiasm. Even so, there were some notable transactions in the county, including Manhattan-based Storage Deluxe’s purchase from Citizens Capital Group of a 62,000-square-foot commercial property at 370 W. Main St. in Stamford for $5.5 million, or about $93 per square foot, in March.
The new owner plans to reposition the property as a CubeSmart self-storage facility with 60,000 square feet and more than 500 units; with the remaining 2,000 square feet maintained as retail space. The transformation is expected to be completed by the end of the summer.
The report also touted the continuing improvement in Fairfield County’s unemployment rate, which improved from 46% in January to 3.5% in May, the last month for which figures were available. “This is encouraging as there has not been incremental job creation over the last 12 months,” Houlihan commented. The positive unemployment statistics trend supports “a solid economic foundation for real estate assets,” it said.
The state’s unemployment rate as of May was 3.6%, compared with a 3.4% rate nationwide.