The commercial real estate community is split on how the Fairfield County market will fare this year, with some anticipating a better-than-expected rebound in jobs to limit further drops in lease rates, while others still mindful of ongoing problems for some landlords in meeting their debt obligations.
Fairfield County had an office availability rate of nearly 25 percent in the fourth quarter of 2009, according to commercial brokerage Newmark Knight Frank. That compares with a 21 percent availability rate in adjacent Westchester County, N.Y.
“You had some overhang from the financial meltdown, and there were a number of tenants that put space on the market or reduced their space,” said John Goodkind, a broker with Newmark Knight Frank in Greenwich. “But it”™s a little bit misleading. If you look at all the deals that got done ”“ you look at Affinion, you look at Purdue Pharma ”“ the activity level I would say is robust, people are doing things.”
Kevin McCarthy, an economist with Cushman & Wakefield, predicted the overall vacancy rate will drop back down to between 15 percent and 16 percent within a few years.
“Businesses have cut their spending ”¦ to the bone,” McCarthy said, at a commercial real estate conference at the University of Connecticut this month sponsored by the Connecticut Business and Industry Association and the Stamford Chamber of Commerce. “As demand picks up, they are going to have to start hiring.
“That will start to put some upward pressure on rents, but not a lot,” McCarthy continued. “It is still going to be a tenant”™s market for the next few years.”
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The bad news is that the same forces are at work in New York City, and to an even greater degree. Whereas Fairfield County benefited in the most recent economic boom from financial companies relocating to Greenwich and Stamford, McCarthy said the new real estate realities in the Big Apple make that less likely for the time being.
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“Generally in a weak real estate climate you see a flight to quality, and certainly in Manhattan we have seen that,” McCarthy said. “What that means is the flight out of Manhattan has slowed to a trickle. However, it”™s also true that we have seen some significant activity outside Manhattan ”“ in Westchester and in White Plains, some significant leases have been signed by companies moving out of Manhattan.”
The same is true in Greenwich, according to Goodkind of Newmark Knight Frank.
“The central Greenwich market, whatever molasses state it was in, is totally turned around,” Goodkind said. “Rents are down maybe 10 to 15 percent, but it”™s tough to find good space. I don”™t see that reversing itself. The couple of hedge funds that ran into stone walls ”“ that”™s all gone.”
Both Westchester and Fairfield County had relatively little new office construction compared to many other parts of the country in the past decade, providing less competition for existing property owners.
“One of the things about this cycle is that the expansion was relatively short, and for the real estate market that is important,” McCarthy said. “The more an expansion goes on, the more confident business owners become, and the more they put shovels in the ground. What we didn”™t see was a lot of new construction.”
Cushman & Wakefield”™s lead broker for Fairfield County cautioned that those property owners are still under major pressure, and that for now that has the entire market in flux as many prospective tenants continue to take a wait-and-see approach on where lease rates are headed.
“To say that we are out of this from a commercial real estate perspective, from my ”¦ view ”“ we are far from it,” said Jim Fagan, senior managing director of Cushman & Wakefield. “You are going to see, in about the next 12 to 18 months ”¦ a rough road for the commercial real estate markets.”
