Although SourceOne Worldwide recently leased 115,000 square feet of industrial space at 21 Hyde Road in Farmington (above), a number of other firms are building their own facilities due a lack of quality industrial space in the Greater Hartford area.

A lack of quality industrial space has led companies in the Greater Hartford area to build their own facilities, simultaneously keeping the market healthy and compounding already-existing vacancy issues.

The “flight to quality” phenomenon continues to shape the Greater Hartford industrial market. Today’s companies are seeking amenities and conveniences that make many of the area’s existing buildings less competitive or some even functionally obsolete. From specialized manufacturing facilities to high-bay distribution, potential tenants are finding it easier and more cost-effective to build exactly what they need rather than try to adapt their operations to existing space.

“I think the industrial market in the Hartford area is a lot stronger this year, and we’re definitely seeing some bigger deals in the marketplace,” said Chris Metcalfe, a broker with CB Richard Ellis’ Hartford office.

Metcalfe’s office recently closed a deal with SourceOne Worldwide for 115,000 square feet of industrial space at 21 Hyde Road in Farmington, which represents the largest industrial lease in his area through mid-year of 2003.

However, more and more deals seem to be ground-up construction of new facilities. The reason, said Metcalfe, is the simple fact that there isn’t a lot of quality space in the marketplace.

“We’ve had a few land sales for bigger transactions, and that indicates that the larger spaces aren’t as prevalent as they once were,” he said. For example, Parkside Plunkett-Webster, a distributor of building materials, recently purchased a 20-acre parcel at 425 Sullivan Road in South Windsor. Its plans for the site include construction of a 100,000-square-foot distribution facility.

Several similar deals were inked, including an 80-acre parcel sold to Pepperidge Farm, a snack manufacturer, and a 30-acre parcel sold to TJX Cos., a clothing retailer that owns chains such as T.J. Maxx and Marshalls.

Currently there is close to 1 million square feet of industrial space being built in the Hartford marketplace. TJX is building an 800,000-square-foot, high-bay distribution center in Windsor. When looking to relocate its regional facility, the company was not able to find the type of space it desired.

High-bay space is scarce in the market. Pepperidge Farms also wanted to upgrade and modernize its space. The snack manufacturer has moved from an older building into a state-of-the-art bakery and distribution facility on Blue Hills Avenue in Bloomfield.

The Ford Motor Co. also has moved into the area, signing a lease for a 232,000-square-foot facility in Windsor Locks. Spacefitters is another area company that has seen substantial cost savings by consolidating three locations into one 80,000-square-foot facility with higher ceilings. The demand for high-bay space is great, as such space creates a need for less overall square footage.

“Granted there are special requirements within all of these deals, but they’re all indicative of the relatively low supply of quality buildings,” said Metcalfe. “These are all big-name companies, and they’re all building new in the area.”

‘A Real Hindrance’

Certain parts of the market continue to lag, and older space in particular is struggling to get leased. Metcalfe noted that there are certain portfolios that have a lot of vacancy and don’t appear to be getting leased any time soon. Many of those are multi-tenant older portfolios.

“These older buildings are getting increasingly higher vacancy as this flight to quality continues,” he said.

As newer facilities continue to be built around the state, more buildings are becoming vacant and unwanted. It is estimated that close to 5 percent of Hartford’s current overall vacancy rate is due to those few functionally obsolete buildings that will probably never again be occupied.

The Greater Hartford area presently is attracting numerous out-of-state developers because there is an excess of flat, developable land throughout the region. The acres along the Connecticut River valley were formerly used as tobacco fields and now provide an expanse of land perfect for industrial use.

“As opposed to other mature markets in the region, we have a ton of land available. There are hundreds of acres of flat, well-drained land,” said Metcalfe. “Other markets have seen their land gobbled up in building booms here and there.”

Along with the desirable land, the area also offers two labor markets, as companies can draw both from the Greater Hartford area and Springfield, Mass.

“The dual labor market certainly makes the area attractive, but it’s just the inventory of land that is bringing companies here,” said Metcalfe. “In other markets they’ll have to jump through hoops to get a site. Imagine trying to get 30 acres in Boston? It just wouldn’t happen. The cost of building up a site elsewhere would be a real hindrance.”

Overall vacancy in the entire Greater Hartford area in the second quarter of 2003 rested at 13.4 percent, up from 12.8 percent last quarter, while availability rose to 14.3 percent. In the city of Hartford the availability rate jumped to 17.4 percent due to ADVO’s 250,000-square-foot building becoming available. ADVO, which bills itself as the nation’s largest full-service targeted direct-mail marketing services company, is expanding and moving its operation to a build-to-suit in Windsor. Despite the company’s move, however, the city’s vacancy rate remained at a relatively low 11 percent.

Two 50,000-square-foot buildings, 171 Utopia Road in Manchester and 31 Edwin Road in South Windsor, are also newly available due to more companies in need of downsizing.

The Greater Hartford industrial market posted negative net absorption this quarter of 694,589 square feet, pushing the year-to-date absorption to just over 1 million square feet. The West suburban market is the only submarket to yield positive absorption in the second quarter of 199,806 square feet. That is mainly due to SourceOne relocating from Massachusetts and expanding in Farmington. Total net absorption is expected to trend positively in 2004, according to CB Richard Ellis.

Lease rates have declined slightly as landlords are forced to be more competitive in today’s market. The build-to-suit options are comparable to most other markets, while the long-vacant buildings can’t be competitive enough. The Greater Hartford market continues to hold its own, though, with a healthy overall average asking lease rate of $4.71. The East market has the highest suburban average asking rate due to an asking price of $13.50 per square foot at 47 Eastern Blvd. in Glastonbury.

Construction activity continues to rise all over the Greater Hartford marketplace. Many build-to-suits are under way in the North market. In Farmington, construction has begun on 48,000 square feet of new flex buildings on Northwest Drive. The continued demand for land shows that the desire to build around Hartford is far from dwindling.