by Colin Reilly
The majority of the Fairfield County office market was constructed in the 1980s. This was due in large part to a combination of attributes employers found attractive within its six submarkets. Those attributes included efficient income and corporate tax structures, high quality of life, excellent public schools and a well-educated workforce.
While the state income tax was introduced in 1994, the relocation of UBS to the Stamford CBD in the mid-1990s was a seminal moment in the evolution of the tenant mix in Stamford. The move also had an overall effect on Fairfield County, as the finance, insurance and real estate sector ”” FIRE ”” became the dominant industries in the marketplace. While this was good news for the FIRE industry, rising rents and access to value labor forced nonfinancial companies to shift eastward or relocate out of state to realize cost synergies as a result of M&A activity. These factors led Greenwich tenants to seek larger quarters in Stamford, Stamford tenants sought to be closer to labor by moving to Merritt 7 and companies within the Central submarket looked to Shelton to mitigate rising real estate and labor costs. This activity culminated with office employment reaching its peak level in 2000.
Although leasing velocity has shown signs of modest improvement year- over -year at 2,393,118 square feet year to date the availability rate in Fairfield County remains stubbornly high at 20.5 percent due to several large blocks in Stamford such as the former HQs of Pitney Bowes and General Reinsurance. Other assets that while technically available are functionally obsolete have also contributed to the increase in availability rate.
In addition, the countywide availability rate has remained fairly flatlined, due in part to the densification of space utilization in the workplace. Employers are seeking to maximize their utilization of space, while also increasing productivity and creativity from serendipitous meetings or so-called “a-ha” moments. Generally speaking, this occurs when employees are no longer in static office settings and have more chance encounters for discussion and problem solving.
While leasing velocity is expected to remain fairly steady, if unspectacular, through 2016, expectations are the availability rate may move downward as obsolete stock is repurposed. For instance, Building and Land Technology has demolished a portion of the 100,000 square feet at 150 Glover Ave. in Norwalk that had been office and R&D for Covidien. BLT is now in front of the city of Norwalk with a plan to develop up to 700 residential units.
Other facilities throughout Fairfield County are being evaluated for repurposing or redevelopment, as there is a paucity of cool, loft environments that are valued by tenants outside the FIRE sector such as technology, advertising, media and information businesses, or TAMI.
While the office inventory is largely mature and evolving, the transportation infrastructure supporting it remains the same as it was well before the arrival of UBS. This has an impact on pricing and growth. The closer a building is to a multimodal transportation center, train and bus, the greater the economic premium it commands. Long-term growth will be stifled until labor can efficiently access the largest office markets in southern Fairfield County by car on the Merritt Parkway, Interstate 95 and via mass transportation.
While there are presently no broad-based drivers in place from either a policy or industry standpoint that will stimulate the leasing markets in the near term, there are pockets of TAMIs that value the natural advantages of Fairfield County. The challenge to grow these TAMIs and other tenancies are not only transportation and labor, but also a consistent tax structure.
The state of Connecticut”™s Department of Economic and Community Development under Gov. Dannel Malloy had been successful prior to the 2015 budget in providing incentives on a case-by-case basis to lure larger entities to Connecticut and to Stamford.
There is hope all the stakeholders in Connecticut will come together with practical and rational solutions that will attract and grow the next generation of labor to the county. After all, the high quality of life, excellent public schools and a well-educated workforce are still here and attractive to the millennial generation that will soon have families of its own.
Colin Reilly is senior vice president at the Westhchester/Fairfield office of CBRE Group Inc. in Stamford. He can be reached at 203-325-5390 or by email at colin.reilly@cbre.com.
