Lease renewals rather than new lease deals fueled Fairfield County’s office market in the first half of this year, while second-quarter deals declined and available space rose, according to recent reports from the brokerage firms Newmark Knight Frank (NKF) and Avison Young.
NKF reported gross leasing activity in the second quarter totaled approximately 880,000 square feet, a 15 percent decline from the same period in 2016. Second-quarter leasing dropped 8 percent from activity in the first quarter.
The county’s office availability rate climbed to 27.1 percent in the recently ended quarter, a 5.7 percent increase from the second quarter of 2016 and a new peak for the Fairfield market, according to NKF researchers.
Through the first six months of this year, gross leasing activity totaled 1.8 million square feet, a 21.7 percent leap from the first half of 2016, according to NKF.
Lease renewals accounted for 950,000 square feet of that total, nearly double the level of renewals in the same period last year. Sublease deals accounted for nearly 150,000 square feet of office space through the first two quarters, more than double the subleasing activity in the first half of 2016.
New leases through June this year were down 23.5 percent from a year ago, according to NKF.
Avison Young reported a 9.5 percent decline in leasing activity in the second quarter compared with the first three months of this year.
The county’s office market saw a positive net absorption of 148,467 square feet of space in the second quarter, according to Avison Young, after 186,870 square feet was added to the market in the first quarter this year.
Avison Young researchers attributed a 1.76 percent year-over-year rise in the average second-quarter rental rate to increased asking rents by office landlords in downtown Greenwich and Stamford.
The brokerage said the county’s vacancy rate — which measures available space being actively marketed — rose to 17.8 percent in the second quarter, up 160 basis points, or 1.6 percent, from the second quarter of 2016. That was the highest year-over-year basis point increase in the market since 2012, according to Avison Young.
“We have one of the highest vacancy rates in the country for office space,” said Tula Voutieros, research analyst at Avison Young’s Norwalk office. “Clearly, that is a signal that the marketplace has changed and user needs have changed.”
Both NKF and Avison Young cited Blue Sky Studios’ renewal of its approximately 146,800-square-foot headquarters at One American Lane in Greenwich as the second quarter’s largest lease deal.
In the quarter’s largest sublease deal, Daymon Worldwide, a private-brand retail services company, signed at 333 Ludlow St. in Stamford for an office space reported as 41,464 square feet by NKF and as 44,196 square feet by Avison Young.
Tracking the county’s largest new leases in the second quarter, Avison Young cited Western CT Home Care’s lease on a 16,283-square-foot space at 100 Saw Mill Road in Fairfield. NFK reported the top new deals as Gemspring Capital’s 13,100-square-foot least at 54 Wilton Road in Wilton and Fusion Learning’s 10,622-square-foot lease at 777 Commerce Drive in Fairfield.
Greg Frisoli, executive managing director at Newmark Knight Frank’s Stamford office, predicted that more diverse deals could be coming soon to the county. “For the major leasing in the first half, there was a lot of stay-in-place activity,” he said. “We have not seen a tremendous amount of expansion and new tenants coming in, but we could see more of that by year end.”
Avison Young noted the limited availability in the county for contiguous space of 100,000 square feet and higher and said the market could see “a rapid dwindling of space to meet demand from large prospective users.”
The brokerage also forecast continued uneasiness in the medical office sector due to uncertainty about the Affordable Care Act and Republican efforts to dismantle it. And the continued trend among developers to adapt aging and underutilized office buildings for new uses could contribute to more shrinkage in office inventory.
Voutieros said she thinks the market will see stirrings of improvement in the coming months. “The slowing has slowed,” she said. “We’re hoping some transactions will transpire. We could see a little bit of a flight to quality for some big users — when market conditions are soft, it is a good opportunity to go into bigger spaces. We might see some tenants moving about and playing musical chairs and we could also see big entrants like we saw Henkel in the fourth quarter (of 2016) — that’s not off the table.”
Frisoli said the county will increasingly see office space incorporated into mixed-use development projects that also include retail and residential space.
“We will see office as a component,” he said. “Right now, we are not seeing new speculative out-of-the-ground office development happening anywhere in Fairfield County.”