While Greenwich remains a top draw in the Tri-State region for commercial real estate, as evidenced by animator Blue Sky Studios Inc. planned relocation there from Westchester County, N.Y., landlords may have to get creative themselves in attracting tenants in other parts of the county.
After rapidly escalating prices in the first half of 2007, the market cooled considerably in the waning days of the year, according to James Fagan, senior managing director of Cushman and Wakefield of Connecticut Inc.
While the broker”™s data illustrates continued market demand ”“ “a bit of a surprise to us” in Fagan”™s words ”“ in the past three months some tenants appear to be quietly putting off relocation plans to see if lease asking rates will drop.
They may be in for a disappointment ”“ Cushman & Wakefield predicts a short period of flat prices that will begin to escalate again by midyear at the latest.
“We don”™t expect prices to drop but we do expect activity to slow,” Fagan said.
Complicating the picture is the lack of new office space being built. Instead, Fagan also noted a trend in the redevelopment of existing structures.
“We”™re seeing a phenomenon where instead of building new buildings, developers are coming in and taking existing buildings and renovating them to be almost better than new,” Fagan said.
Material costs, including steel and concrete, have risen dramatically over the past five or six years, said Kenneth McCarthy, a New York City-based managing director of Cushman & Wakefield.
“It costs more per square foot today to put up a building than it ever has,” McCarthy said. “We do think it”™s more cost-effective for a developer to take an existing property and essentially make it new.”
At year end, the vacancy rate for class A office space in Fairfield County was 12.5 percent, down from 12.7 percent in the third quarter and 14.7 percent a year ago.
Fourth-quarter average rents for class A space were $35.40 per square foot, up 11 percent from last year”™s figure of just under $32.
The town of Fairfield continues to have the lowest vacancy rate in the county at 1.3 percent, with just 14,000 square feet available of the town”™s more than 1 million square feet of total office space.
Danbury topped out at nearly 21 percent, as nearly 100,000 square feet of space went onto the market.
As demonstrated by lease rates, the Greenwich market remains the biggest draw, most recently illustrated by Blue Sky Studios”™ decision to relocate into 100,000 square feet of space at 1 American Lane in Greenwich, from its current base at 44 South Broadway in White Plains, N.Y. A subsidiary of News Corp. and its Fox Filmed Entertainment division which produced the feature film “Ice Age,” the studio employs more than 300 people.
While the company”™s relocation is a boon for star-struck Connecticut, which has been encouraging filmmakers to create movies here, Fagan said the behind-the-scenes activities of Fairfield County”™s hedge funds drive the overall economy. Hedge funds continue to amass capital and hire, he said, in hopes of spotting moneymaking opportunities in the midst of turmoil in various markets.
In Greenwich, asking rents spiked $30 per square feet over the past year to more than $75, a record increase for the period Cushman & Wakefield has tracked the market. Some buildings in Greenwich”™s central business district are fetching more than $110 per square foot.
In Stamford, average rent in the best office buildings was more than $42, up from $38.50 a year ago; some properties reached $50 per square foot.
Under new owner Hearst Corp., the Stamford Advocate is moving out of its plum 75 Tresser Blvd. address near the city”™s train station, which has proven a prize location for big financial services companies like UBS AG and Royal Bank of Scotland.
The largest leasing deal in the quarter was GE Energy Financial Services”™ decision to move into Xerox Corp.”™s former headquarters at 800 Long Ridge Road in Stamford. That is a short jog from its present location at 120 Long Ridge Road; Norwalk-based Building and Land Technology owns both properties.
Major building sales include Strategic Real Estate Advisors purchasing 800 Connecticut Avenue in Norwalk from CB Richard Ellis Investors; and BLT buying 260 and 292 Long Ridge Road from GE for a reported $11 million.
