Fairfield County office market showing signs of life
Commercial rentals in Fairfield County showed signs of life in the second quarter as vacancy rates appear to be stabilizing.
In the quarter, leasing activity increased by 71.1 percent, compared with first-quarter numbers, according to the Stamford office of Cushman and Wakefield. Class A leasing activity totaled 663,442 square feet -- almost double the 346,930 square feet leased last quarter and 12.5 percent higher than the same period of last year.
"Leasing activity is finally returning to the more normal levels of 2.7 million square feet per annum after hitting a low of only 900,000 square feet in 2009," said Jim Fagan, senior managing director and head of Cushman & Wakefield's Fairfield and Westchester County region. "We have clearly survived the worst part of the cycle and are in a continuing up-trend, although there will be some bumps along the way."
Class A office vacancy rates range from 29.6 percent in Stamford's non-central business district and 29.1 percent in Greater Danbury to 0.7 percent in Fairfield, where there are few Class A office complexes, according to the Cushman & Wakefield report.
Other Class A office vacancy levels are 20.4 percent in the Stamford central business district, 20 percent in Greenwich, 16.1 percent in Darien/New Canaan, 21.3 percent in Norwalk, 12 percent in Wilton/Weston, 16 percent in Westport/Southport, 13.2 percent in Bridgeport, 14.6 percent in Shelton/Stratford and 17.1 percent in Trumbull.
Average rental rates for Class A space range from $55.53 in Greenwich and $44.17 in Stamford's central business district to $19.99 in Bridgeport.
Major lease deals in the quarter included Bridgewater Associates' expansion at 20 Westport Road in Wilton, moving into 227,998 formerly occupied by Louis Dreyfus Highbridge Energy. Dreyfus relocated to new space at Harbor Point in Stamford.
Other significant leases in the first half the year included AQR Capital renewal of 31,000 square feet and expansion of 27,000 square feet at 2 Greenwich Plaza in Greenwich; Telekurs' renewal of 32,600 square feet at 3 Riverbend Center in Stamford; a new lease by Wells Fargo Advisors for 25,800 square feet at 450 Post Road East in Westport; Columbus Circle Investors' expansion of 7,450 square feet at 1 Station Place in Stamford to 24,000 square feet; a new lease by Freeport Commodities, a spin-off of Sempra, for 23,000 square feet at 5 Greenwich Office Park in Greenwich; Sikorsky sublease of 168,000 square feet at 1 Far Mill Crossing in Shelton; News America renewal of 52,000 square feet at 20 Westport Road, Wilton; Nielsen Co., a new lease for 35,000 square feet on Route 8 in Shelton.
Commercial agents are waiting to see what UBS decides regarding its future in Stamford, possibly impacting the office rental marketing throughout the area.
"That will set a tone for central Fairfield County," said John Goodkind, managing principal at Newmark Knight Frank. "Despite rumors surrounding UBS's plans to pull out of Stamford and relocate back to New York City, financial service firms recognize the importance of maintaining a presence in Fairfield County. In fact, the services industry accounted for nearly 60 percent of the leasing volume (total square footage), including renewals and new deals, in Fairfield County during the second quarter of 2011, and nearly one-third of all deals brokered during this period. These firms are taking advantage of the competitive rates in the market to expand and locate into Class A office space."
His firm's statistics showed the overall availability rate in the county decreased from 26 percent in the last quarter and 26.6 percent reported a year ago to 24.7 percent in the second quarter of 2011.
Tenants and prospective tenants are taking advantage of the vacancy rates to drive deals with landlords, while some are taking less space because they have fewer employees than four years ago, Fagan said, whose firm is marketing The Financial Centre, a 561,000-square-foot vacant office building owned by Lehman Brothers Holdings at 695 E. Main St., in Stamford.
Newmark Knight Frank has been the leasing agent for The Financial Centre, but has been unsuccessful in finding a major tenant.
"That building needs to find an owner. They need to invest money in it. It's a great piece of real estate," Goodkind said. "We're hoping there's a ripple effect from New York City."
Some investors are taking advantage of difficulties faced by some landlords to acquire office properties.
Among deals done in the quarter were the sale of 1 Dock St. (90,000 square feet) in Stamford to Dock Street Holdings LLC for $15.8 million; 889 Bridgeport Ave., (55,000 square feet) in Shelton to Rugby Realty for $2.8 million; 19 Old Kings Highway South (41,000 square feet) in Westport to Forstone Capital for $7.8 million; and 450 Post Road East (35,292 square feet) in Westport to Baywater Properties for $5.4 million.
"Capital is rolling back into the market," Fagan said. "After a period of virtually no sales, owners are finding that market pricing is yielding favorable results, although still well off the price levels achieved in 2007."
A solid rebound in the market, however, will not occur until companies get some reassurance that uncertainty created by the federal health plan, the federal Dodd-Frank legislation regulating financial services and the nation's debt ceiling is resolved, said Robert Caruso, senior managing director of the Stamford office of CB Richard Ellis.
When a surge of hiring occurs, companies will seek more space and vacancy rates will decline, he said, but there are signs of improvement.
"We're not seeing any more giving back of space, which is good. We're starting to see expansion," Caruso said. "People aren't in the reduction mode anymore."
Building and Land Technology is making strides in advancing its Harbor Point project in the south end of Stamford, Caruso said, but there won't be a surge in retail tenants until there are more occupants in the office and residential spaces under construction.
Aside from Harbor Point, there has been little new construction in the region, and the market should slowly absorb much of the direct available space, said Cory Gubner, president and chief executive officer of RHYS, a commercial real estate firm in Stamford.
"Small quarterly improvements in the office market will eventually add up to a significant turnaround, so long as unemployment begins to decline," he said.
The long-awaited bump in hiring may be occurring, based on information supplied by the Stamford office of Jones Lang LaSalle, showing that office-using sectors increased employment in the county by 1.2 percent since June 2010.
Total payrolls grew by more than 1,200 jobs during the first six months of 2011, and office-using jobs accounted for more than three-quarters of additional payrolls, growing by nearly 1,000 jobs.
"It appears that demand-side fundamentals are starting to improve," said the firm in its /Pulse/ report for the second quarter. The trends are indicative of large, well-established companies expanding and smaller companies beginning to stabilize, the report said.