On the outskirts of Connecticut’s big cities, many squat industrial buildings stand vacant. They were once the center of a vital part of the state’s economy, but since many manufacturing jobs were moved to the South, then overseas, vacancy rates in the older buildings have been relatively high.
But now, because of its location between Boston and New York, Connecticut may be due for some continuing new construction as large corporations build 1 million-plus square-foot distribution centers, Timothy B. Mitchell, vice president at CB Richard Ellis, said at a commercial real estate conference last week.
Many of those older buildings with low ceiling heights, however, will probably be demolished or adapted for other uses as time goes on.
The state’s office market is seeing an opposite trend. As companies adopt flexible hours and as more employees work from home, they are requiring less space per employee, and small offices are becoming more popular.
The industrial market’s reaction to Connecticut’s older stock of buildings has been unmistakable, according to Mitchell.
“The market’s being pretty clear,” he said at the University of Connecticut Center for Real Estate and Urban Economic Studies’ annual commercial real estate conference held at the Hartford Marriott Farmington in Farmington. “The market’s telling us it doesn’t want those older, low-ceilinged buildings anymore.”
A study conducted by CB Richard Ellis showed that the older, low-ceilinged buildings have much higher vacancy rates – 12.62 percent – than newer ones with high ceilings, which have a vacancy rate of 7.86 percent, according to Mitchell.
“Hartford [and the rest of Connecticut] has an older industrial supply, but things are changing,” he said. “As we change Â… we’re sort of struggling a little bit. Where we’re falling short is with our older supply.”
Those low-ceilinged buildings were suitable for manufacturing purposes years ago, but new technology requires high ceilings and more airy buildings. And when manufacturers moved away, the buildings stopped being updated. The United States as a whole is not the manufacturing leader it once was – China has taken the lead – but big-ticket items like helicopters, jet engines and other military items are still made here, and making those requires state-of-the-art buildings.
Bad Performance
But even though the movement of manufacturing overseas has affected the entire United States, Connecticut’s industrial market is performing worse than other comparable markets in the country. Connecticut’s overall industrial vacancy rate stands at 11 percent, an improvement from last year’s 13.8 percent. But comparable markets, such as the one in Nashville, Tenn., are doing much better.
Most industrial space in Connecticut is located around Hartford, New Haven and Fairfield County. What will happen to the older buildings depends on where they are, Mitchell said. In places like Stamford, old industrial buildings are being torn down, and the land is being used for condominiums. Many of the smaller buildings across the state likely will be demolished, Mitchell said.
Other buildings are seeing adaptive reuse. One older building at 383 Middle St. in Bristol is being converted to offices, which is an example of its developers thinking outside the box, Mitchell said.
Connecticut also will see new construction of distribution centers. This year Lowe’s Home Improvement built a 1.5 million-square-foot distribution center in Plainfield, and Mitchell expects to see similar construction next year. Overall, 77 percent of the growth in the state comes from companies that already operate here, Mitchell said.
In the office markets in Hartford and Fairfield counties, smaller is often better these days. Fairfield County has seen an 18 percent increase in smaller deals recently, according to Michael D. McGuire, president of the Austin McGuire Co. in Norwalk.
Jay Wamester of Colliers Dow & Condon in Hartford has seen a similar trend. The amount of office space companies are requiring per worker is decreasing, he said at last week’s conference.
The vacancy rate in Hartford has stayed relatively steady over the past three or four years, hovering just under 20 percent. Colliers Dow & Condon tracks 370 buildings in Greater Hartford.
There have been several big sales, including Newton, Mass.-based Northland Investment Corp.’s $41 million purchase of the Goodwin Square Hotel & Office Tower from New Goodwin Square LLC, an entity controlled by Boston-based AEW Capital Management.
New Haven, where Colliers Dow & Condon tracks 217 buildings in the city itself, has a 13.5 percent vacancy rate, which has declined slightly, Wamester said.
Over the next several years, Wamester expects to see rising interest rates affecting the commercial market, and he expects mergers and acquisitions to continue. Mergers and acquisitions are often hard on the market, but can sometimes benefit certain areas, as in the case of the Travelers Property Casualty Corp. and St. Paul Cos. merger, which brought some jobs to the area.