If commercial real estate was dominated in 2009 by major corporate relocations in Stamford, it was defined by steady attrition of jobs at companies large and small ”“ creating a once-in-a-cycle opportunity for prospective tenants and buyers.
Through the first three quarters of 2009, businesses leased 1.4 million square feet of space in Fairfield County office buildings, according to Cushman & Wakefield, which has its main local office in Stamford.
More than 900,000 square feet of space went onto the market in the third quarter alone, however, amounting to nearly 2 million square feet of space that freed up during the first nine months of the year ”“ sufficient space for more than 11,400 workers whose jobs were jettisoned or transferred elsewhere this year.
The overall vacancy rate was 19 percent, according to Cushman & Wakefield, and higher in some specific locales such as downtown Stamford where a third of the affordable, class B office space available was empty.
The overall average rent was $34.60 a square foot in Fairfield County, ranging from nearly $60 in class A offices in Greenwich to less than $18 a square foot in Danbury and Shelton.
Lease prospecting has been up significantly in the past several months compared to the first half of the year, according to Jeff Newman, executive vice president of New York City-based Malkin Properties, which owns several office buildings in Fairfield County.
“There were a number of companies on hold because they weren”™t sure of the market,” Newman said. “There was a reluctance to make a deal on the thought they could have a better deal in a few months.”
Â
That no longer appears to be the case, Newman added, and some companies are taking the opportunity to “trade up” into better quarters for a bargain.
Â
That is the case both for small businesses as well as a few giants like Starwood Hotels & Resorts Worldwide Inc., which the state lured from White Plains, N.Y., with a nearly $100 million incentive package.
Opportunistic buyers are similarly on the prowl, on the expectation that a swath of commercial real estate foreclosures will be triggered beginning in 2012 as leveraged building owners are unable to garner sufficient rent to cover their debt load.
In August, the unaffiliated Starwood Property Trust Corp. raised more than $800 million in an initial public offering of stock, with the Greenwich-based company using some of the money to purchase real estate assets from bankrupt Corus Bank.
The rate of decline for commercial real estate valuations is slowing in the East and elsewhere, according to Integra Realty Resources, a New York City-based firm that touts itself as the largest commercial valuation company having completed 25,000 assignments this year. While Integra expects commercial properties to drop another 5 percent in value over the next six months, that is an improvement from depreciation in 2009 of between 11 percent and 17 percent on average depending on the asset class. Lodging and retail properties have dropped the most this year, particularly in the West, while the office market has dropped 3 percent in the past three months.
Â
In Fairfield County, Integra expects rent declines and vacancy increases to continue in the current quarter, and does not expect a stabilization until 2011.
Â
“Price declines are dependent on lender actions relative to whether they allow non-performing assets to fall into foreclosure, or (whether) they continue to extend existing loans without recognition of negative loan ”¦ values,” said Mark Bates, a managing director in Integra”™s Hartford office.
Assuming no government-sponsored liquidation program akin to the Resolution Trust Corp. formed in the recession of the early 1990s, values are projected to fall another 10 percent to 15 percent, Bates added, before they stabilize in the second half of 2011 and begin a slow recovery in 2012.
In early December, the U.S. House of Representatives passed a bill to extend some $31 billion in expiring tax cuts ”“ including a one-year extension on the 15-year timeline for leasehold improvements ”“ but did so by including a provision that would almost double the tax on carried interest.
That amounts to a permanent tax increase on commercial real estate development, according to BOMA International, a trade group that represents building owners and managers. The bill now heads to the Senate, where timing for consideration is unclear.
