Omnicom Group purchased One East Weaver St. in Greenwich for $32 million during the first quarter of this year.

Last year’s negotiations bore fruit in the first quarter of 2004 as real estate companies closed deals for hundreds of thousands of square feet across the state.

Fairfield County saw several large transactions close. Asset management firm Paloma Partners extended its lease for 105,000 square feet in Greenwich. Diageo PLC, the alcoholic beverage company, has leased an entire 280,000-square-foot, built-to-suit tower in Norwalk, the biggest deal in the county for the first quarter. FactSet also took 130,000 square feet in Norwalk and GE Commercial Finance added to its already large presence there by adding another 40,000 square feet.

“If there’s a story about the first quarter, it’s Norwalk,” said Al Mirin, first vice president with CB Richard Ellis in Stamford. “Three of the top four deals [in the county] were in Norwalk.”

East-to-west migration continued in Fairfield County, Mirin said. Stamford has been suffering for the past several quarters and that continued at the beginning of 2004. Traffic woes and companies’ desire to relocate closer to where their employees live prompted many to move to Norwalk. The biggest deal closed in Stamford for the first quarter was for 18,000 square feet, well below many of Norwalk’s deals.

Office deals dominated Fairfield County, said Jim Fagan, senior managing director for the Fairfield and Westchester counties region of Cushman & Wakefield. Leasing activity was strong in Fairfield County, according to a press release provided by Fagan. Companies leased 895,847 square feet. But absorption was low, at negative 294,457 square feet, as large blocks of direct space came back on the market, according to Fagan’s release.

Despite Norwalk’s success stories, the city experienced the largest increase in direct vacancy, according to the press release. The vacancy rate climbed from 12.7 percent in the last quarter of 2003 to 13.3 percent in the first quarter of 2004. The increase is partly due to Micro Warehouse completing bankruptcy proceedings and returning 100,000 square feet of space to the market.

Stamford, meanwhile, showed positive absorption in the first quarter.

The Waterbury region, however, was dominated by retail deals and saw little office or industrial activity. Waterbury fared well with several large retail deals closing before March.

“Waterbury’s hot for retail,” said Tom Hill, vice president of Coldwell Banker Scalzo-Tom Hill Group.

Hill’s company closed a deal for a building that houses a PetsMart and Sports Authority in Waterbury for $10.7 million. Retailers have been flocking to the city because of its low prices, which are a result of a history of political corruption that has been cleaned up by the state and by Waterbury’s current mayor.

“People think our prices are a bargain,” Hill said.

Multifamily residential real estate also saw some action in the Waterbury region, with a company planning a 350-unit, age-restricted development in Middlebury near the Waterbury border, Hill said. A Jewish school, Yeshiva Gedolah, moved to Waterbury last year and is starting to attract businesses from elsewhere, Hill said.

“People who know them from New York have been following them,” he said.

The school bought 100 houses in Waterbury’s Hillside section and Hill hopes they will continue to attract developers and companies from outside Connecticut.

Retail should continue to be a bright spot in the Waterbury region, Hill said. It outshone industrial and office space in the first quarter.

“As far as office space, it’s soft,” Hill said.

‘Easing’ Pressure

Fairfield County will continue to have success with commercial real estate if the county, and the country, see sustained job growth this year.

“I think the market’s choppy and uneven,” Fagan said.

But he is “cautiously optimistic” that job growth will push forward the office market. The U.S. economy expanded by a 4.1 percent annual rate during the first quarter and helped corporations return to profitability, according to Fagan’s press release.

“Both of these economic indicators point toward a recovery in the persistently stagnant national job market, though Connecticut has lagged the national average in job growth over the last year,” according to the release.

If Connecticut can keep up with the country as a whole, that will mean more corporations looking for more office space in the next several quarters.

“Job creation is the leading indicator of an improving real estate market,” Fagan said in the release. “In 2001 and 2002 companies were focused on cutting costs. Today, firms are concentrating on how to grow their businesses.”

Fairfield County’s Class A office rental rates remained steady in the first quarter as compared with the fourth quarter of 2003. Direct asking rents averaged $26.97 per square foot, according to Fagan’s release. The highest rent went to space in Greenwich for $43.47 per square foot and the lowest Class A rent went to space in Bridgeport for $18.97 per square foot.

“The increase in sublease activity over the current quarter, and, subsequently, the leveling off of sublet supply in the market may indicate that downward pressure on direct rents may finally be easing,” Fagan said in the release.

Investment activity was moderate during the first quarter. Omnicom Group purchased One East Weaver St. in Greenwich for $32 million and Mercury Partners bought 274 Riverside Drive in Westport for $12.7 million.

“Demand for quality office investment properties in Fairfield County remains strong from institutional investors,” according to the release.

Vacancy in most of Fairfield County’s submarkets was down sharply from a year ago. The overall vacancy rate in Fairfield County was 18.7 percent in the first quarter of 2004, down from 10 percent in the first quarter of 2003. Greenwich’s vacancy was 14.4 percent in the first quarter of this year, while it was 17 percent in the first quarter of 2003. The vacancy rate in the south central portion of the county was 20.7 percent in the first quarter of 2004, down from 26.8 percent for the same time last year.

Like Fagan, Mirin remains hopeful that the strong activity will continue through the current quarter and the rest of the year.

“As far as the leasing market goes, pretty much every market has dropped in availability,” he said. “That’s good news. The worst is over.”