Despite Challenges, Connecticut’s Fairfield County Office Market Shows Improvement Potential
With employment representing one of the most critical factors in the health of the office sector, people naturally look to the unemployment rate as a key metric to quickly assess a given market. By this standard, Fairfield County should be thriving, with the unemployment rate at 4.4 percent in April 2017 — just under the 4.8 percent rate reached just prior to the recession.
And yet, the availability rate in Connecticut’s largest office market stood at 24.5 percent at the end of the first quarter of 2017 — a far cry from the 15.2 percent rate seen at year-end 2007. There are two reasons for the discrepancy. First, it is far more accurate to look at office-using employment (information, financial, professional services and other industries)
versus overall employment as a barometer. While office-using employment has rebounded approximately 4.0 percent since the depths of the latest recession, today’s count is still 8.4 percent lower than the latest peak. Second, a marked shift in the desired style of office and an upswing in remote working opportunities have led to reduced utilization rates in terms of square feet per employee.
Today’s employers want to be in buildings that make their employees happy and can best accommodate their redefined usage ratios. To that end, most activity is occurring in Class A buildings. During the first quarter, 81.8 percent of Fairfield County’s total 1.1 million square feet in office leasing volume was signed in Class A space. The Eastern submarket was the most active submarket by leasing volume, accounting for 41 percent of the total. This is largely due to large renewals by Prudential Annuities and Yale New Haven Hospital. The largest new lease during the first quarter involved Epsilon Marketing, which signed for 64,850 square feet in Wilton.
Recently, momentum has picked up in the Stamford central business district as well. Its reputation as a live-work-play environment is attracting employers and employees alike. Stamford also continues to attract investor interest. Silverback Development is one of the newest owners/developers to the Fairfield County market, and specifically to Stamford. The company’s recent three-property purchase, totaling 92,000 square feet, represents its first acquisition outside the New York City market.
The Fairfield County investment market, overall, can be characterized as flat. Since investors cannot rely solely on rent growth in the current climate, they look more to assets that either have high historical occupancy rates, or that can be redeveloped. For example, One Lafayette Place in Greenwich traded for roughly $541 per square foot. Meanwhile, on the opposite end of the spectrum, GE’s former headquarters sold for just $64 per square foot.
Looking ahead, the Stamford CBD will likely continue to garner attention on the leasing front. One of the major occupiers, Charter Communications — which has leased roughly 400,000 square feet at 400 Atlantic Street and other parts of Stamford — has its lease coming due in 2018. A move within Stamford would have minimal impact. A move elsewhere would be a different story.
Two of the other largest tenants in the market are potentially considering intra-county moves or renewals as well. And, if rumors prove to be correct, one of these tenants could double its occupancy — from about 90,000 to 200,000 square feet. However, it is also rumored that they are having trouble finding a space that meets their full requirements and price points.
Indeed, the Fairfield County office market continues to face challenges, but it also has potential for near-term improvement. Commentary continues to focus around employers and their desire to be close to abundant talent pools, spurring relocations to places like New York City. Fairfield County — especially its satellite cities like Stamford and Norwalk — are well positioned to capitalize on this trend, offering proximity to Manhattan, a surge in multifamily development, and lower cost of living to attract the right population and employers.
— By Sean Cullen, director of research, Colliers International, Stamford, Conn. This article first appeared in the July 2017 issue of Northeast Real Estate Business magazine.