The commercial real estate market in Fairfield County reflects the issues affecting the greater national economy. Due to the fundamentals of commercial real estate and how the marketplace functions, the region will be in a state of malaise for the foreseeable future. The marketplace has bottomed, however, and will improve over time. From 2005 through mid 2008, employment was increasing, companies were expanding; there was competition to put money to work through loans and investments. Capital formation grew at a torrid pace as the national capitalistic system sought higher and higher returns in a market where the risk seemed to diminish each month. As that feel-good locomotive hit the wall in 2008, there were tremendous lay-offs and all capital sources that had been pushing money at the real estate asset class evaporated. In the first three quarters of 2009, tenants stopped conducting real estate business almost altogether. Even tenants driven by lease expirations often opted for short-term renewals due to the cataclysmic uncertainties that decision makers were facing. Additionally, tenant renewals were driven by give-backs of space as companies needed less space due to fewer employees. Companies took space proactively in 2007 because they anticipated hiring more employees, but they …
Connecticut
Recent news: The leasing activity in Connecticut has been very healthy in recent months as evidence by the new leases signed in the marketplace. Some junior anchor box examples include a 24,000-square-foot REI deal in Norwalk; a 37,000-square-foot Stop & Shop Supermarket in West Hartford; a 30,000-square-foot PC Richards deal in Milford; and numerous other deals. Also, the recent sale of the Shaw’s Supermarket sites to existing supermarket chains demonstrate that retailers feel that Connecticut is still a very healthy market. Another trend, which has been very apparent in Connecticut, has been the surge in franchise concepts leasing smaller spaces within supermarket anchored shopping centers and community centers. Some franchises that are active include Massage Envy, Sport Clips, Robeks, Five Guys, Doctors Express and numerous others. Submarket update: The luxury-oriented streets (Greenwich Avenue in Greenwich and Main Street in Westport) had a weak 2009. However, the outlook for 2010 is much more promising with recent signature stores openings, including Apple and Ralph Lauren. Leasing activity has increased dramatically and leasing inquiries are at its highest levels since the summer of 2008. Predictions for the next year: The “Year of Fear” (2009) is over, thankfully, and the “Year of Caution” (2010) …
Multifamily investment activity in Connecticut is expected to gain some additional momentum this year after a reasonably strong 2008. Last year, investors’ fears of the added risks associated with lower-tier assets limited transactions to mostly Class A and B+ properties in the state’s urban areas. While reduced investor demand for properties in secondary and tertiary locations will continue, buyers are expected to target Class B/C apartments in stable CBD markets. Buyers will likely target lower-tier properties in the New Haven and Hartford core, Hamden and the Fairfield/Bridgeport/Trumbull Triangle, where students drive demand for properties. Fewer Class A transactions and the presence of low-leverage opportunistic buyer funds will likely result in a shift in pricing trends, causing cap rates to increase to the mid-7 to 9 percent range. Apartment properties are trading and being financed in the region, thanks largely to agency lenders and still-active local and regional commercial banks. With the fall of the CMBS market, a financing void has emerged in the local and national markets. In 2006 and 2007 CMBS originations nationwide totaled more than $400 billion. Our research suggests that more than $80 billion in CMBS loans will come due in 2009-2010 and recapitalizing those loans will …
We expect 2009 to continue to be a tough year for commercial/investment real estate, but multifamily is certainly the preferred product type for institutional and private investors delivering stable, solid returns, particularly in the supply-constrained New England markets. Transaction velocity was actually fairly strong through EOY 2008 although cap rates and IRR have increased by 100 to 150-plus basis points from a year ago, and currently we are pricing properties using cash-on-cash returns based on true, twelve month trailing operating data. Fortunately, the greatest demand from institutional investors is for well-constructed Class “B+” to “A” properties in the region. While we don’t have the problem of shadow inventory that we do in Florida, Arizona and other markets, we have noticed an increase in vacancy for Class A and B properties in the region. Occupancy in a number of properties we analyze for our monthly same-store rent comp survey has dipped, but we’re still ahead of most other national markets. We are generally seeing an increase in vacancy in New Haven, Fairfield, Middlesex, New London and Hartford County properties from 100 to 400 basis points but we expect strengthening later this year. After 30-plus years in this business, my honest opinion …
What area is your expertise? Connecticut — Fairfield County. What trends do you see presently in office development in your area? Slow to moderate growth in office demand. An adequate supply of product is available but not many “lookers.” Who are the active office developers in your area? Very little new development. Mostly local developers without national recognition e.g. Building and Land Technology of Norwalk and The Davis Company, also of Norwalk. Please name one or two significant office developments in your area. What impact will these projects have on the market? Blackrock Realty’s new railroad station project is underway in Fairfield that will become Fairfield Metro Center office park. The 100 Fairfield Metro Center building will encompass the first phase of the development and contain 200,000 square feet of Class A office space. A pavilion building on-site will add another 70,000 square feet to the overall development. Phase I is scheduled for completion in 2009. Where is the majority of development taking place? Why is this area doing well? Lower Fairfield County. It’s located along the commuter route to New York City. What area do you expect to be the next big development market? Why? The 33-acre Wilton Corporate …
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