The Amaranth Group’s 123,070-square-foot lease at Greenwich American Center in Greenwich was among Fairfield County’s top commercial real estate deals in 2003.
Fairfield County’s commercial real estate market recorded another good quarter, seeing positive absorption rates and even a few venture capitalists coming back into the area.
According to information from CB Richard Ellis, the diversity of Fairfield County’s business community proved an asset in the third quarter of 2003, as strength in the financial services industry stimulated a market that otherwise exemplified the sluggishness characteristic of Connecticut’s economic recovery. Specifically, the ongoing expansion of hedge funds and other financial service companies boosted leasing, produced positive absorption and reduced availability countywide compared to the same period of last year.
Most of the financial services activity took place in the Western submarket, primarily Greenwich and Norwalk, where the actions of GE Commercial Finance, the Amaranth Group, Graham Capital, Ziff Bros. and AQR Capital Management, among others, elevated the segment’s leasing 34 percent from the first nine months of last year to almost 1.3 million square feet, or more than half of all the velocity in the county thus far this year.
The removal of several large blocks of available space from the West’s supply as a result of those transactions combined with minimal new space returns to produce positive absorption of nearly 397,960 square feet. Availability in the segment, consequently, fell 16 percent from last September to 2 million square feet and the availability rate dropped almost 3 percentage points to 16.3 percent.
Because the West’s strength came from such a specific sector of the financial services industry, however, the benefits associated with the spike in its demand generally remained within the boundaries of the Western submarket. Stamford, the East and the North saw less exciting results in the first nine months of this year, results perhaps more in line with the realities encountered in a jobless recovery. But, according to Dean Shapiro, executive director of CB Richard Ellis’ Stamford office, the slight uptick in the economy has translated into a stabilization of space returns throughout Fairfield County, allowing for some progression into the supply of available space given the demand in the West.
Altogether, absorption in the county reached positive 682,580 square feet, availability decreased 7 percent over the past year to 7.7 million square feet and the availability rate fell just over a point to 16.9 percent. Leasing rose 13 percent from last September to 2.5 million square feet. Because much of the space leased by the hedge funds and financial service firms was among the most expensive in the county, average asking rent countywide plummeted $2.35 per square foot from a year ago to $25.99 per square foot.
Unlike neighboring Westchester County, N.Y., where relocations from New York City have had a tremendous impact on leasing over the past few years, Fairfield County’s velocity continues to derive from the expansion and movement of companies already in the county. According to Shapiro, relocations into Fairfield County dropped 7 percent from last year to 244,140 square feet, while expansions grew 19 percent and intra-county moves jumped 14 percent.
Shapiro noted that in an interesting contradiction to the general perception that the supply of venture capital dried up with the technology bust, the amount of space leased by start-up companies climbed 13 percent from the first nine months of last year. Among the start-ups this year was Level Capital, which leased 7,500 square feet at 537 Steamboat Road in Greenwich. Additionally, Helen Trow/Idele Management leased 5,269 square feet of office space at 83 Worcester Heights Road in Danbury and HVC Lezard recently leased 4,317 square feet at 40 Richards Ave. in Norwalk.
“These aren’t huge deals, but at least it’s something,” said Mary Ryan, spokesperson for CBRE.
‘Bits and Pieces’
While such internal growth has been seen as a positive sign, given the lack of vitality in the general economy, new blood has always been a contributing factor in the growth of Fairfield County’s office market – and without it, the market lacks an important stimulus. Already, with the exception of a few new commitments following the Sept. 11, 2001, terrorist attacks, the county has not seen a significant relocation from an outside firm since 1999. Part of that may stem from the new trend of overseas outsourcing – in an effort to cut costs, companies are now setting up back-office operations in places like India, where a highly educated population is available at much lower prices than in the United States. Initially, the outsourcing has focused on call centers, but may eventually grow into billing, benefits and other accounting-type functions.
“Significant relocations have never really happened a great deal in the county, and when they do happen it’s sporadic,” said Shapiro. “The only significant activity we’ve seen, as far as relocations is concerned, was following Sept. 11.”
At that time, Fairfield County saw 300,000 square feet of space taken from outside companies, but 200,000 of that was put back on the market.
“Net vs. net, it wasn’t a huge impact,” said Shapiro. “We have seen bits and pieces, generally by financial services companies, but in terms of large corporations we haven’t seen anything significant since 1999, but that’s actually not out of the ordinary for us.”
As to why companies may not locate in Fairfield County, Shapiro points to its affluent population, expensive housing and geographic location.
“The problem with Fairfield is, where do the people live?” he said. “Fairfield is not a real easy place to access, and it’s expensive to live in. If you’re a company who pays a lot of money to its people, or already live up here, it’s terrific. If you’re trying to attract a diverse workforce from the executive to the clerical level, it’s going be difficult, especially in Western Fairfield.”
He noted that after a long dry spell during which expansions practically disappeared, however, and companies made do with what they had, internal growth is a welcome sign, especially as a notable portion of the growth came in large transactions which eliminated large blocks of available space from the supply. In total, space leased in deals greater than 50,000 square feet jumped 155 percent from last year to 681,850 square feet, causing the size of the average transaction to increase 5 percent to 7,396 square feet.
Much of that came from deals in the West submarket, where GE Commercial Finance’s 221,000-square-foot commitment at 201 Merritt 7 in Norwalk, the Amaranth Group’s 123,070-square-foot lease at Greenwich American Center in Greenwich and Graham Capital’s purchase for occupancy of 40 Highland Ave. in Rowayton were just three of the seven transactions completed in that segment that made it into the county’s top deals of the year for 2003.
For the past two years, Fairfield County’s market identity revolved around the constant growth of sublease space. Panicked companies seeking to ease pressure on their balance sheets dumped space onto the market at incredible rates, leaving the county struggling with a huge burden of surplus space at a time when demand had reached an all-time low. In the first nine months of 2003, that burden eased slightly, due somewhat to improved leasing velocity, but mostly to a more moderate level of new space returns. As of the end of September, sublease space remained unchanged at 2.5 million square feet. However, because the total amount of available space dropped 7 percent from last year, subleases increased to 32 percent of the county’s total availability from 30 percent in 2002.
Shapiro said that while the decrease in overall available space in Fairfield is certainly encouraging, the fact that large leasing transactions broke up several major blocks of available space sets the stage for even more progress in the future. As of the end of September, tenants with requirements exceeding 50,000 square feet had 32 opportunities countywide totaling almost 3 million square feet of space. At the same time a year ago, they had 37 in 3.9 million square feet – and very few users of that size existed. The future could also take another turn, however, given the dependence of the real estate market on the growth of the labor market. In addition, rumors of the possible return of several large blocks of space to the county’s supply are rampant, potentially dampening the remarkable recovery evident in the Western submarket.
And despite a somewhat brighter economic picture, tenants looking for space continued to hold sway in Fairfield County in the first nine months of 2003.
