Although not exactly a new trend, area Realtors say that converting vacant office space into residential properties is continuing to gain momentum — reflective of the ever-growing “Live-Work-Play” paradigm.
“It’s all a matter of, ‘Where can I get the most return for the money I’m putting in?’” said Jim Fagan, senior managing director of Cushman & Wakefield of Connecticut Inc.
Fagan, who is responsible for the management of Cushman’s Stamford and Westchester County offices, said developers are now “looking a little outside of the box, determining whether they should just be refurbishing an office space or turning it into something else.”
Abandoned office properties are often “obsolete and under-parked,” said Thomas Pajolek, executive vice president at CBRE in Stamford. “They’re without the nearby amenities that people are increasingly looking for and they’re often light-challenged. Many of these buildings were constructed during the energy-efficient ’70s, with small windows to conserve energy.”
Tenants are now looking for options with more natural light and that are close to mass transit — preferably within walking distance of trains, or near major highways, Pajolek said.
“That’s morphed into the ‘live-work-play’ movement, which plays into the growing TAMI — technology, advertising, media and information — sector,” he said.
In Norwalk, the former Tyco headquarters at 150 Glover Ave. is being converted into an edifice consisting of 235 rental units.
Adjacent to the Towers campus in Norwalk, Stamford-based developer Building and Land Technology (BLT) is building a mixed-use development that will feature more than 1,000 residential units, biking trails and substantial new infrastructure, said BLT Chief Operating Officer Ted Ferrarone.
Ferrarone said that most of its Harbor Point developments on the Stamford waterfront have been adaptive reuses of old industrial properties. One of the latest is Harbor Landing, a mixed-use waterfront development that brings together the Stamford Landing office complex and the Davenport Landing boatyard and residential properties.
The newly connected waterfront destination, across from Harbor Point and overlooking the Long Island Sound, will offer 200,000 square feet of waterfront office space, 218 residential rental units, two restaurants, a full-service boatyard operated by The Hinckley Co., a boardwalk, and a marina with about 120 available slips.
“We’ve built 11 apartment buildings either through conversion or demolition and building from the ground up” in the area, he said.
In addition, former office space that had been demolished and was known for decades as “the hole in the ground” in Stamford is now the site of construction of the two-building, 650-apartment Stamford Urby residential complex. The apartments will include studio, one-bedroom and two-bedroom units. On the city’s south end, the Beacon at Harbor Point multifamily development took the place of extensive warehouse/industrial space formerly used by Pitney Bowes.
While much of the Stamford office-to-residential development has been concentrated on the waterfront and downtown, Ferrarone said, “We’re starting to see more and more on ‘the ridges,’ like High Ridge. Corporations want to be near transportation, which contributes to demand for apartment housing that their workforce wants to be in.”
Companies and residents alike are “definitely identifying Stamford as a place they want to be,” he said.
Stamford has completely revitalized itself from the 9-to-5 town where “there was nothing to do in downtown, which was basically an area you didn’t necessarily want to be in after business hours,”’ said Sean Cahill, principal and managing director at Avison Young. “It’s very different today. The demand for amenities — either within an office or apartment building, or nearby — has played a part in what’s been a very positive evolution for the city.”
As with most observers, Cahill is keeping an eye on the former UBS complex at 677 Washington Blvd. The 700,000-square-foot property has stood vacant since UBS relocated in 2016 across the street to 600 Washington and was finally sold late last year to Stamford Washington Investors LLC for $33 million. Among various proposals under consideration are turning the structure into apartments, at least in part.
What was once known as “The UBS building” is now “the 677 Washington building,” Cahill said.
People “all want the same things: they want to be able to talk to other people and go downstairs, maybe there’s music, or next door to a bar,” Clayton H. Fowler, chairman and CEO of Spinnaker Real Estate Partners, said at a Westfair panel in April. “It’s important to have those recreational opportunities.”
Spinnaker has completed more than 3,000 housing units in Westchester and Fairfield counties, Fowler said.
According to Cushman data, after recording a decrease of about 5,200 jobs in late 2017, Connecticut continues to increase its employment base, which it expects will eventually translate to positive absorption of available office space. Gains in the economy and improving employment point to a future office market with lower vacancy rates over the coming 24 months.
Fairfield County leasing activity remained strong in the first quarter, producing 665,949 square feet of leasing velocity, 5.8 percent higher than one year ago. The South Central submarket led county demand in the first quarter, registering 228,014 square feet of leasing activity.
FactSet’s lease for 176,104 square feet at 45 Glover Ave. in Norwalk was the largest signed in the first quarter, accounting for 77.2 percent of the total leasing activity in South Central submarket. BLT, which owns the 264,500-square-foot Class A office building, said that FactSet’s lease will bring the property to 100 percent capacity.
Despite increases in leasing activity, overall vacancy throughout Fairfield County increased 1.1 percent year-over-year to 24.2 percent, according to Cushman. The largest year-over-year uptick in vacancy occurred in the Stamford noncentral business district (CBD) submarket, increasing by 3.4 percent to 31.6 percent. The increase in overall vacancy was attributed to GE Energy placing 275,000 square feet of sublease supply on the market at 800 Long Ridge Road. Overall, net absorption contracted in the first quarter, ending at negative 591,783 square feet.
With more space on the market, overall average asking rents contracted $1.62 per square foot to $32.55, Cushman reported. The Stamford non-CBD submarket recorded the largest drop in pricing over the last 12 months, falling $3.76 per square feet to $29.87.
“Increasing household formation and healthy demand for office space are projected for the balance of the year,” Cushman reported. “Although Fairfield County has been struck by large space dispositions over the last 12 to 24 months, Fairfield County’s tenant composition appears to be becoming more diversified, which may lead to less volatile markets going forward.”
Meanwhile, CBRE’s first-quarter Westchester County office market report found the county recorded about 205,000 square feet of total leasing activity during the first quarter — up from the previous two quarters, but still the weakest leasing start to a year since 2009. Cushman put the overall vacancy rate at 24.6 percent, up from 20.6 percent in the first quarter in 2017.
“Despite the significant rise in vacancy,” it said, “demand is projected to remain stable throughout the year, while vacancy is expected to decrease, most notably in more urban submarkets.”