Among the properties currently for lease in New Haven is 1 Church St., a 9,000-square-foot retail/office building that is being offered for $18 per square foot.
Developments that will draw lots of people to city centers and subtle changes in interest rates and the stock market have changed the market for retail space in Connecticut, and have made for a busy summer for commercial brokers.
Sales have been brisk in New England this summer. The sales of two shopping centers – the New London Mall and the Capaco Center in Wethersfield – recently closed for just over $40 million each, according to Bill Moylan, senior vice president and partner of CB Richard Ellis in Boston. And with institutions like pension funds dealing with the shaky stock market, they are more often chasing after investments such as shopping centers, which have had a low vacancy rate since 1995.
“On the sales front, the institutional investors’ appetite is very strong,” Moylan said.
The biggest trend Moylan has noticed is that, since 1999, the internal rate of return expected by institutions that buy shopping centers has fallen substantially, which has prompted them to be willing to pay more for properties. In 1999, institutions expected rates of return of 11 percent, but are now expecting 7 percent, according to Moylan. In the last six months, the expected rate of return has fallen by nearly a full percentage point.
Moylan said he expects that eventually will level out, but with the high demand for shopping centers, the expected internal rate of return could fall a little more, he noted.
Institutional Change
Interest rates have had an effect, as well. The 10-year rate has gone up a bit and has affected who is investing in the retail market. Two years ago, private investors were buying up shopping centers because they could borrow money at low interest rates. The big institutions were being outbid. But rates have gone up just enough to push private investors out of the market, and since institutions are accepting lower rates of return now, they are the ones buying the shopping centers these days.
On the leasing side, developments such as the newly opened Connecticut Convention Center in Hartford are prompting retailers and restaurateurs to seek space in areas that likely will see a lot of foot traffic. Nick Morizio of Colliers Dow & Condon in Hartford has been getting calls from people who want to start a business or a restaurant. Smaller buildings – especially restaurant buildings – are in demand in Hartford and its suburbs, Morizio said.
“I guess people are eating out more these days,” he said.
Demand also has been up this summer in New Haven, according to Steve Miller, owner of Woodbridge-based Levey Miller Maretz. Summers are usually quiet, but this one has been busier than usual, Miller said.
“We have completed probably eight or 10 leases in downtown New Haven for retail and/or restaurant space,” he said.
And he continues to get calls from people looking for space. Typically, clients are seeking restaurant space between 1,000 square feet and 2,500 square feet, according to Miller.
“There are [also] always retailers looking for small space [of up to 5,000 feet],” he said.
Among the properties currently for lease in New Haven is 1 Church St., a 9,000-square-foot retail/office building that is being offered for $18 per square foot.
Suburbs of New Haven also have seen a lot of activity. A Starbucks recently opened in Woodbridge, a new development for the area.
