GE”™s decision to relocate its headquarters from a suburban campus in Fairfield to Boston brings a visible trend ”” corporate tenants leaving suburban properties behind for urban centers ”” into our own backyard. Data from Real Capital Analytics Inc., a commercial real estate data firm, shows a 125 percent increase in the values of commercial properties in central business districts, as opposed to their suburban counterparts that rose only 43 percent, over the past decade. As companies increasingly opt to position themselves in tech-savvy cities with access to the skilled and highly educated workforces they seek to move their businesses forward, suburban communities find themselves with large, vacant commercial properties waiting for investors to give them new life.
Adaptive reuse of these large, suburban corporate campuses gives way to new multi-office units and a different mix of tenants in the business community. Oftentimes, real estate investors who already have a deep presence in the community and other commercial real estate assets locally find these opportunities to reposition assets for new uses attractive. However, attracting a group of smaller tenants to occupy the former GE campus is not enough to mitigate a lasting impact on the Fairfield County economy.
PROJECTED IMPACT
The relocation of at least 200 executive jobs from Fairfield to Boston will undoubtedly make its biggest impact in the short- to mid-term on the single-family residential market. Adding excess inventory to an already crowded market ”” where single-family homes and condos for sale averaged 150 days on the market in Q4-2015, according to Berkshire Hathaway HomeServices ”” will have a trickle-down impact on existing retail and restaurants throughout the county. With retailers looking at purchasing power within a 3-mile radius of their chosen location when deciding where to open, these impending departures also inhibit the county”™s ability to attract new retailers to contribute to their tax base. Not to mention the ensuing downward pressure on asking rates for vacant Fairfield County office space. Asking rents have already begun trending downward in both Fairfield and Hartford counties, and CoStar reported a 4.9 percent increase in retail vacancy rates for shopping centers in these markets for the fourth quarter of 2015.
CLASS A VS. CLASS B HOUSING
With hundreds of high-paying executive positions poised to leave Fairfield County, the Class A single- and multifamily housing market stands to take the biggest hit. Despite the negative economic impact, the Class B and Class C housing markets stand to see little or no impact from GE”™s departure. The demand for workforce level multifamily housing is strong, as national homeownership remains at historic lows, and the B and C market has seen little new construction this cycle. As a result, multifamily rents and occupancy continue to post gains in this asset class. Further, sales of Class B, and even Class C, apartment buildings in Connecticut are still going strong and retail and multifamily assets in these classes aren”™t significantly threatened by the loss of GE. These markets represent opportunities for real estate investors to still get returns, raise rents and increase occupancy rates in submarkets throughout Connecticut.
A NATIONAL PERSPECTIVE
The lure of urban centers is being felt in more than just Fairfield County. Much like corporate tenants, young professionals, mid-career professionals and retirees are opting for multifamily dwellings in urban centers over suburban homeownership. Data from the U.S. Census Bureau and CoStar reveals Q4-2015 homeownership rates fell below the 25-year average (1982-2006) for all ages except the 65 and older demographic. Data further show baby boomers and seniors flocking to rental properties, with 1.9 million new rental households established among the 55 to 64 demographic as of Q3-2015.
While GE”™s departure from Fairfield will call for a reinvigoration of the business community, markets such as New Haven are great examples of successful reinvention to attract businesses. During the past five to six years the city has made a concerted effort to become more business-friendly and it is now one of the strongest investment real estate markets in the state.
Edward Jordan founded Northeast Private Client Group in 2010, an investment real estate firm with offices in Connecticut, Massachusetts and New York. He can be reached at ejordan@northeastpcg.com.
