The Fairfield County office market had a good but not great year in 2016, according to three new industry data reports. And uncertainty lingers over the future of some of the county’s largest office properties at the start of 2017.
According to data released by Newmark Grubb Knight Frank, 2016 leasing activity in the county totaled 3.6 million square feet, a 14 percent decline from the 4.2 million square feet of leasing recorded in 2015 but 9 percent above the 10-year leasing average of 3.3 million square feet for Fairfield County.
With the decline in leasing, office availability rose in late 2016, jumping from 21.9 percent in the third quarter to 24.2 percent in the fourth, compared with a 21.5 percent availability rate at the end of 2015.
The average asking rent increased to $37.16 per square foot by the end of the fourth quarter, up 5.3 percent from the third quarter and 4.9 percent higher on a year-over-year basis, according to NGKF.
James Ritman, executive vice president and managing director at NGKF in Stamford, predicted the next 12 months could see greater vibrancy.
“Overall, leasing activity for 2016 was down a little bit from 2015, but there was a very positive fourth quarter and that momentum could spill into 2017,” he said. “There are large blocks of space on the market — buildings where there was uncertainty in the last 12 to 18 months with debt restructuring and large groups downsizing. Now some of that is getting worked out and there is more of a clear path for doing deals at these buildings.”
In its quarterly market report, RHYS reported 11.6 million square feet of available office space in the Fairfield market by the end of last year. Of that total, directly leased space accounted for 10.7 million square feet, down a slight 0.6 percent from the start of 2016. Subleased space accounted for 974,350 square feet of total available space, up 11 percent for the year.
RHYS also reported that the overall office vacancy rate rose 1.6 percent in the fourth quarter, ending the year at 16.1 percent. Office vacancies in the Stamford and Greenwich submarkets drove the market increase. Stamford’s vacancy rate increased by 2.6 percent during the year to close at 21.6 percent, while Greenwich saw a 1 percent uptick in vacant space, ending the year at 14.5 percent vacancy.
With new vacancies outpacing new leasing activity, the county office market saw a negative net absorption of 793,234 square feet during the fourth quarter, the worst quarterly result in 15 years, according to RHYS researchers. The fourth-quarter slump followed a positive net absorption of 832,501 square feet of office space through the first three quarters of 2016.
Most of the flood of office space added to the market in the fourth quarter came in the Stamford submarket, which posted a net negative absorption of 755,394 square feet of space for the last three months of 2016.
“It is very much a tenants’ market,” said RHYS Executive Vice President and Principal Christian C. Bangert. “There is a lot of vacancy. Landlords are always competing with a solid handful of other locations.”
Bangert said some vacancy numbers were driven by a few large transactions, including General Electric’s relocation from 606,000 square feet of headquarters space in Fairfield to downtown Boston and UBS relocating in downtown Stamford from its U.S. headquarters at 677 Washington Blvd. and downsizing in a 120,000-square-foot space at 600 Washington Blvd.
“The last couple of years you had large users that skewed the overall vacancy rates,” Bangert said. “If you lose a half-million square feet here and there in a row, it contributes to large vacancies to the market. But in the bread and butter market — the 3,000- to 5,000- or 10,000-square-foot market — the vacancy rate for that is not as high.”
In 2017, Bangert said, vacancy rates could seesaw again if a landlord or two could “land a big tenant in one of those big chunks of property.”
In another market report, Colliers International said the Fairfield County office availability rate ended the year at 22.3 percent. The average asking rent climbed 1.2 percent year-over-year to $35.71 per square foot.
Colliers said the county’s eastern submarket ended the year with a 15.6 percent availability rate, while available space in the central submarket rose by 180 basis points in the fourth quarter to 24.1 percent, The northern submarket’s availability rate shrank by 30 basis points for the fourth quarter to 15.5 percent.
Jeffrey Williams, executive managing director and market leader at Colliers in Stamford, said a pair of Stamford properties could be among the dominant stories for the 2017 office market.
“You have the Starwood acquisition by Marriott, and their headquarters in Stamford is still a question mark,” he said. And a nonperforming $148.7 million commercial mortgage-backed securities loan against the 682,327-square-foot UBS Center at 677 Washington Blvd. was put up for sale in December.
“We anticipate the note will be picked up on the inexpensive side,” Williams said. “In my estimate, it may go for as little as 30 or 40 cents on the dollar. It is being discounted because retrofitting that building is going to be very expensive.”