County’s office vacancies rise despite ‘healthy’ first-quarter leasing

A glut of office space added to the Fairfield County market in 2016 raised the county”™s office availability rate in this year”™s first quarter to its highest point in a decade, according to brokerage firms here.

Newmark Grubb Knight Frank (NGKF) in its first-quarter office market report said although tenant demand remained “healthy,” large blocks of space added to the market raised the availability rate to 26.8 percent of total office inventory in the county, a 5.4 percent increase from the first quarter of 2016 and up 1.7 percent from the previous quarter. Despite new lease deals and tenant renewals, Newmark said 680,510 square feet of space was added to the market from January through March.

CBRE Inc. in Stamford reported Fairfield”™s first-quarter availability rate at 23.4 percent and 473,034 square feet of space added to the market in the first quarter.

NGKF reported total leasing was nearly 1 million square feet, more than double the leasing activity in the first quarter of last year. New lease deals accounted for 530,000 square feet, a nearly 42 percent increase from a year ago and 25.6 percent above the first-quarter historical average.

CBRE said new office leases were signed totaling 589,000 square feet of space in the first quarter, a sharp decline from the nearly 1 million square feet of newly leased space in last year”™s fourth quarter.

Tom Pajolek, executive vice president at CBRE”™s Stamford office, noted that the first quarter”™s level was higher than the five-year quarterly average of 488,895 square feet. “It didn”™t feel that way, but that”™s the nice news,” he said.

Fairfield County”™s net negative space absorption in the first quarter was largely due to Starwood Hotels and Resorts Worldwide listing another 300,000 square feet on the market at its 333 Ludlow St. headquarters in Stamford in an ongoing corporate downsizing since Starwood”™s $13.3 billion acquisition last year by Marriott International.

Sean Cullen, director of research at the Stamford office of Colliers International Group Inc. predicted the former Starwood space would not be vacant for too long. “That space is highly sought after because Marriott is being extremely aggressive in marketing that space,” he said. “Five companies signed or are in the process of negotiating there.”

CBRE reported a first-quarter average asking rent in the county of $34.73 per square foot, which was largely unchanged from the fourth quarter of 2016. NGKF reported an average asking rent of $38.09 in the first quarter, down from $37.71 in the previous quarter.

In the largest first-quarter new lease deal, Epsilon, the Chicago-based marketing data firm, leased 64,850 square feet of space at 10 Westport Road in Wilton, where it will consolidate its two existing offices in Westport and Wilton.

In the second ”” largest new lease of the quarter, Partner Reinsurance Co. of the U.S. will occupy a full-floor, 56,690-square-foot office at 200 First Stamford Place in Stamford. The company, which does business as PartnerRe, is relocating from One Greenwich Plaza in Greenwich.

In the largest renewal deals of the first quarter, Prudential Annuities Life Insurance leased 197,610 square feet at 1 Corporate Drive in Shelton. Yale New Haven Health and North East Medical Group, a nonprofit multispecialty medical foundation, agreed to a 10-year lease expansion and extension totaling 100,968 square feet of space in Merritt 8 Corporate Park at 99 Hawley Lane in Stratford.

OFFICE MARKET TRENDS

Commercial real estate professionals in Fairfield County said they expect to see more owners repurposing office space property for other uses.

At CBRE, Pajolek cited a recent example of the repurposing trend in Stamford, where LCB Senior Living LLC, a development company based in Norwood, Massachusetts, in April paid $12 million for a building at Parklands Office Park with plans to convert it to a 100-unit assisted-living residence. “We can expect to see more changes in the use of this type of property because demand is off and there is an oversupply of office space,” he said. “Some companies will use this for housing, assisted living or health care.”

CBRE in its first-quarter report noted that owners that upgraded and expanded their office-building amenities and collaborative spaces “have enjoyed more success than their competitors, especially from TAMI (technology, advertising, media and information) tenants and other millennial-heavy firms.” They pointed to PartnerRe”™s move to 200 First Stamford Place as “a perfect example of this trend.”

Newmark Grubb Knight Frank in its quarterly report said that in the last three years approximately 20 office properties totaling 3 million square feet of space “have undergone or are currently undergoing major renovations that involve not only the typical facelift but also incorporate the on-site services and entertainment that attract millennials and Gen Zs.”

“Tenants are looking to come to the market and employers are looking for quality space to help attract and retain top talent,” said James Ritman, executive vice president and managing director at NGKF”™s Greenwich office. “They are willing to pay for this space and the millennials are the hot button they try to attract. Any new project that is being built ground up or is being repurposed in Fairfield County ”” and in Westchester, for that matter ”” is being aimed at becoming a 24/7 property.”

In Danbury, the 1.4 million-square-foot Matrix Corporate Center is in foreclosure proceedings and could send vacancy rates even higher in the county.

Boehringer Ingelheim moved its office at the Matrix in January to its Ridgefield headquarters, while Praxair left the complex in late 2016. No new companies have signed leases at the Danbury center, and the county”™s more suburban northern market will have problems attracting major new tenants, said Cullen at Colliers.