Leasing activity in the city of Stamford, including a 55,643-square-foot lease by the law firm of Cummings & Lockwood at 6 Landmark Square (above), was a big reason for the recovery of the Fairfield County office market in 2005.
Huge discrepancies in office rental rates and modest overall improvement marked the fourth quarter of 2005 in Fairfield County, but strong positive absorption throughout the year kept commercial real estate agents happy.
“In general, the marketplace is improving modestly,” said Edward Tonnessen, executive vice president of Albert B. Ashforth Inc. in Stamford.
Vacancy rates are decreasing in the county, and prices are holding steady or rising. The vacancy rate for Class A office buildings at the end of the fourth quarter was 16.1 percent, down from 17 percent at the end of the third quarter, according to a quarterly report from Ashforth. There was 5.9 million square feet of Class A office space available at the end of the third quarter, compared to 5.5 million at the end of the fourth quarter.
“At first glance, that’s at least a positive trend,” Tonnessen said. “What that belies is something the statistics don’t immediately reveal.”
In fact, there is a bifurcation in the marketplace, particularly in Greenwich, Stamford and Norwalk, he said. The most desirable locations have vacancy rates that are significantly smaller than the less desirable locations. If the overall vacancy rate in an area is around 16 percent, Tonnessen said, there is typically a vacancy rate in the low single digits for the more desirable neighborhoods.
“There are great spreads that are not revealed in the market stats,” he said.
In Greenwich, office space in the more coveted areas commands more than $80 per square foot, while in the city’s less desirable areas, tenants can pay less than $40 per square foot. The price for space in Stamford’s premier spots ranges from $40 per square foot to $50 per square foot, while other parts of the city see much lower rents.
“There is plenty of space to be had for less than $30,” Tonnessen said.
In Norwalk, rents range from a high of $40 to below $30 per square foot.
The schism is not necessarily a negative development, Tonnessen said, but the growing chasm between the highs and lows in rental prices is somewhat new.
“It’s never been this extreme,” he said.
But it is likely the market eventually will equalize, Tonnessen said. The disparity in rents is because there is little available space at the high end and many tenants are competing for it.
“There are new prospects lately looking at the choice areas,” Tonnessen said.
For the rest of the market, there is not enough demand. There has not yet been enough trickle-down from the premium office locations to help the secondary market, Tonnessen said. However, as long as the economy sustains the segment at the high end of the market, eventually there will be enough demand to breathe new life into the secondary market.
Tonnessen addressed the importance of understanding the complex market in Fairfield County.
“In assessing this market Â… there’s a danger to oversimplifying,” he said.
One of the most important pieces of the market puzzle over the past year was Stamford, which is continuing to come out of its slump. The leasing of 55,643 square feet at 6 Landmark Square by the law firm of Cummings & Lockwood was among the city’s biggest deals.
“Really the resurgence of Stamford is responsible for [the positive numbers at the end of 2005],” said Robert Caruso, managing director of CB Richard Ellis’ Westchester/Fairfield office.
‘More Progress’
According to CBRE’s year-end report, leasing velocity in Stamford accounted for 44 percent of all activity in the county in 2005, up from 24 percent last year. In Stamford, leasing more than doubled in the central business district to nearly 1.1 million square feet and grew 146 percent in the non-central business district. Companies like Synapse Group, Gerald Metals and Cummings & Lockwood made recommitments to the city, and companies like UBS, Stamford Hospital and Icon International expanded operations there.
Across the county, there was more than 300,000 square feet of positive office space absorption for the year, and the market has been strong across the board, Caruso said. Each submarket saw positive absorption and leasing is up to its highest level since 2000. Among the notable deals of 2005 was the Financial Accounting Foundation’s leasing of 65,665 square feet at 401 Merritt 7 in Norwalk.
CBRE’s year-end report characterized the year’s successes as an end to “Fairfield County’s long struggle to right itself after 9/11 and the ensuing economic downturn.” Growth in corporate confidence and new hiring, along with an increase in outside interest, generated the expansion and new commitments that buoyed the market.
“The health of Fairfield’s business sector has always been very firmly tied to the state of the general economy, and once that began to recover, it was just a matter of time before our area followed suit,” Caruso said in a prepared statement. “While it certainly took longer than many of us thought, when it did come back it was with a bang: Demand is strong almost all over the county, investment sales and financings are still at high levels, and rents are increasing. All that’s left is to control space returns, and as long as the economy continues to grow, I expect we’ll see more progress toward that end.”
Leasing in Fairfield County rose 24 percent in 2005 to nearly 4.1 million square feet, according to CBRE’s report. Available space in the county declined 4 percent compared with the end of 2004, falling to about 7 million square feet, and the availability rate dropped more than a full percentage point to 15.9 percent. The increased demand spurred rent hikes, raising average asking rent $1.41 per square foot to $28.28, a 5 percent gain over 2004.
