Fairfield County’s office market saw increased leasing activity and rising rents during 2017, but it also saw more vacancies. One major build-to-suit project, the county’s first in seven years, gave a new shine to the market.
Newmark Knight Frank in its quarterly Fairfield office market report said the county’s office leasing activity grossed 4.2 million square feet in 2017, up 18.5 percent from the previous year. Despite the increased leasing volume, overall availability ended the year at 26.2 percent, 1.2 percent higher than 2016.
Occupancy levels fell by 807,662 square feet of space in the first half of the year, but rebounded by 309,741 square feet in the second half. At year’s end, office occupancy was down by 497,921 square feet from 2016, according to NKF.
Last year was the worst since 2012 for net absorption of office space in the county market, according to RHYS, the commercial real estate firm in Stamford.The Stamford and Central submarkets saw the greatest levels of positive net absorption, according to RHYS, with 232,700 square feet of space and 319,634 square feet, respectively, taken off the market in lease deals. RHYS said the Central submarket — which includes Darien, New Canaan, Norwalk, Westport and Wilton — reduced available office space there by 5.7 percent.
RHYS reported that office rents were 3.31 percent higher by the end of the year than in 2016, averaging $31.78 per square foot countywide. The Greenwich submarket saw the greatest rent hikes over the course of the year, rising by 12 percent to $65.66 per square foot.
The year’s most notable lease deal, according to brokers, was Charter Communications’ relocation to new 500,000-square-foot, 15-story headquarters at 406 Washington Blvd. at Building and Land Technology’s Gateway Harbor Point in Stamford. Brokers said it was the first project in the county since 2010 developed by a landlord to house a single corporate tenant.
“This was a pleasant surprise,” said James Ritman, executive vice president and managing director at Newmark Knight Frank in Stamford. “They could have done the most obvious choice and moved into 677 Washington Blvd., the UBS building.”
“The square footage may have been there,” said Christian Bangert, executive vice president and partner at RHYS, referring to Charter’s unexercised option to lease the UBS building. “But if they were to retrofit the UBS building or the Silicon Harbor building (the former 470,000-square-foot Pitney Bowes headquarters in Stamford), I assume the cost and time would have outweighed the cost and time of building a ground-up building.”
Bangert said more office properties could be built by Fairfield landlords to suit single corporate tenants. “A handful of tenants of that size and caliber have the potential weight to get a building built for them,” he said. “Within Stamford, Indeed is growing fairly consistently and, at one point, will outgrow the square footage and efficiency of its current building. And I know FactSet in Norwalk is looking for something else.”
The year’s most widely publicized real estate story was the pursuit of the ultimate XL-sized corporate tenant, Amazon and its proposed second headquarters campus, which found the Fairfield County submarkets publicly elbowing each other for the e-commerce giant’s attention.
Gov. Dannel P. Malloy gave the state’s blessing to Stamford and Hartford as Connecticut’s official candidates for Amazon’s consideration, while Danbury Mayor Mark Boughton offered a droll YouTube video pitching his city and Bridgeport Mayor Joe Ganim teamed with his New Haven counterpart Toni Harp to offer a twin-city bid.
Bangert said Stamford had the best shot among the Fairfield County bidders, due in large part to its closer proximity to New York City. But Amazon’s presence might add considerably to the city’s budget.
Stamford could accommodate the square footage, Bangert said. “But the infrastructure to accommodate something like Amazon would require adding trains, buses, potentially a hyperloop. It would be a major upgrade not only to office space but the city as a whole.”
Ritman at NKF said that in the absence of mega-tenants and with office vacancy rates in the low- to mid-20 percent range, new construction is not needed in Fairfield County necessary. Last year saw no new office construction throughout the county.
After the Charter deal, the largest new lease of the year was Bank of America’s 115,479-square-foot transaction at 600 Washington Blvd. in Stamford, according to Newmark Knight Frank. The other top transactions for 2017 were renewals and expansions, most notably Prudential Annuities Life Insurance’s renewal on its 197,610-square-foot space at 1 Corporate Drive in Shelton and Interactive Brokers’ 162,273-square-foot renewal and expansion at 1-3 Pickwick Plaza in Greenwich.
“When a company is in a building that still works, it is obviously easier and a lot less expensive to renovate and stay in place,” said Ritman. “It makes the most sense.”
Among the submarkets, NKF reported the greatest demand was at Fairfield County’s southern tip, with Greenwich racking up 75 lease deals totaling 881,604 square feet of office space. Newmark said 54 percent of the year’s transactions were in the town’s non-Central Business District. Interactive Brokers’ lease deal was the largest in Greenwich since 2011.
In Stamford, the Charter Communications deal drove a 47.8 percent increase in leasing activity in 2017, which totaled nearly 2 million square feet. But Newmark researchers estimated the city’s office market would have been up by 10.4 percent without that transaction.
Fairfield County’s most populous city, Bridgeport, barely registered in the office space market in 2017.
“I am not aware of any new office deals coming into Bridgeport,” said Ritman. “I think companies are looking to be closer to New York City. And then there’s New Haven. Because of Yale, that city would generate more interest from a commercial standpoint for office space versus Bridgeport.”
Bangert said Bridgeport’s waterfront on the Long Island Sound makes it an ideal location for residential and retail development rather than office properties. He noted the city’s recent flurry of commercial real estate developments in multifamily housing, retail and entertainment venues are playing to its strengths.
“Bridgeport never had a very strong office population,” Bangert said. “Even if you drive through, you notice the lack of tall skyscrapers. And knowing the vacancies in the cities with the most sought-out office markets — Stamford, Norwalk, Danbury — we don’t need to add more office square footage to the marketplace.”