Expansions and strong demand meant higher leasing for Fairfield County’s office market during the first three quarters of 2005, but space returns in the long-conflicted city of Stamford fueled negative absorption of 442,040 square feet in the county.

Although demand in Stamford more than doubled from 2004 to 1.2 million square feet, negative absorption of 243,280 square feet increased available space 8 percent to 3.4 million square feet, according to a third-quarter report from CB Richard Ellis in Fairfield County and Westchester County, N.Y. Stamford was strongly affected by the 9/11 terrorist attacks, but seemed to be pulling out of its funk in the first quarter of this year, when leasing velocity was up 253 percent from last year to almost 598,000 square feet, or 59 percent of Fairfield County’s activity early in 2005.

Strong demand continued through September – with companies like Synapse Group, Gerald Metals, GE Capital, UBS and Cummings & Lockwood renewing space – but it was offset by space returns from companies like Purdue Pharma, which lost its Oxycontin patent, and International Paper, which relocated its headquarters to Memphis, Tenn. The city’s central business district was especially affected.

But while Stamford experienced some setbacks during the first three quarters of this year, the city is expected to continue its gradual improvement.

“I think it will steadily improve,” said Steven Greenbush, a first vice president with CB Richard Ellis.

The big issues in Stamford continue to be the same. Transportation there has always been an issue, with traffic on Interstate 95 often causing gridlock between Stamford, other Fairfield County cities and towns, the rest of Connecticut and New York City. But the market in Greenwich is tightening, Greenbush said, a trend that will spill over to Stamford.

The rest of Fairfield County, however, remained relatively stable during the first nine months of the year. Total available space increased 2 percent from last September to 7.8 million square feet, according to CB Richard Ellis’ report. The availability rate remained almost unchanged at 17.6 percent. Aside from Stamford, the firm was heartened by the third quarter of this year as demand improved compared to the first two quarters.

Near the end of the quarter, the announcement that Royal Bank of Scotland has decided to consolidate its North American headquarters to Washington Boulevard in Stamford was encouraging to brokers. The company will build as much as 700,000 square feet of space on a parcel of land and could relocate as many as 2,000 jobs.

‘Tough Times’

“[Stamford’s ability to attract another world-class financial institution strongly suggests that] though it is going through some tough times right now, the city has much to offer, including a highly talented labor pool that will factor strongly into future growth,” said Robert Caruso, managing director of CB Richard Ellis’ Westchester/Fairfield office, in a prepared statement. “Leasing has improved the past few quarters, and we are once again seeing activity from larger users – always a critical part of Stamford’s stability and something missing over the past few years. And, while we have yet to feel the full impact of the hurricanes, oil price increases and rising interest rates, I’m confident that once the large space returns are brought under control, Stamford, and Fairfield County altogether, will reflect the recovery seen in many other markets around the country.” New hiring will fuel much of the recovery as companies need more space, he added.

Other companies have begun to lock in space through renewals or new leases because of the recognition that prices will increase, according to the report. New commitments grew more than 5 percent from the same period last year to 2.7 million during the first three quarters of 2005. Expansions grew 41 percent from 2004 to 769,430 square feet, or 28 percent of the county’s total demand for the year. The most significant expansions so far this year were from Vertrue Inc., GE Commercial, Greenwich Capital, UBS, Velocity Sports & Entertainment and Finn, Dixon & Herling.

Despite concerns from many about high oil prices after hurricanes Katrina and Rita, the increasing cost of heating will not have much of an effect on the commercial real estate market, according to Greenbush. Most tenants in Fairfield County occupy less than 10,000 square feet, so shouldering the increased burden of heating office space will not make a big difference. It will affect large companies more, but they likely will have to think harder before making any changes. Most companies, even if they wanted to, could not make many changes.

“As a whole, most of the tenants are here because they have to be here and they have to occupy the space they occupy,” Greenbush said.

Indeed, most corporate expansions over the past year took place in midrange-sized companies, which is a significant development. Space leased in blocks between 10,000 square feet and 50,000 square feet increased 18 percent from last year to almost 1.1 million square feet, or 40 percent of the county’s annual measurement. In the first three quarters of 2004, they accounted for 36 percent of the total. Transactions exceeding 50,000 square feet decreased 11 percent to 567,210 square feet, primarily as a result of fewer large commitments in Norwalk, according to the study.

Other factors that will affect the commercial real estate market are whether residential real estate experiences a bubble effect and people’s general view of the economy, Greenbush said. The commercial market often lags behind the residential market, so a crash there could have an impact on commercial space. But on the positive size, hiring is increasing, so businesses need more space, he added.