DEAN SHAPIRO – ‘Extremely bullish’

The time of the casual real estate speculator finding success is probably about to come to a conclusion as the end of the housing boom slows down the economy. But Fairfield County has the potential to see something of a mini-commercial real estate boom as the market in Manhattan, N.Y., gets tighter and companies look outside of Gotham for alternatives.

Commercial real estate professionals gathered last week in Darien to hear experts analyze the markets in Connecticut’s Fairfield County and New York’s Westchester County during a market forecast held by CB Richard Ellis.

The end of the housing boom will have an effect on the overall economy, and the commercial real estate market could get more complicated, according to Craig Thomas, one of the speakers at the event and senior vice president and director of research and research systems at Torto Wheaton Research, a business unit of CB Richard Ellis.

“There are a lot of reasons to expect things will change in the near future,” he said.

But Thomas added that his outlook on the economy is not as bleak as others make it seem. Numbers like individual capacity utilization – which is at 81.2 percent – and manufacturing capacity utilization – which is at 80.4 percent – are among those that dictate future growth. Recession comes with excess inventory, a trend the country is not seeing.

But the housing boom is ending quickly, Thomas said.

“The wheels are coming off,” he noted.

Some clues, such as an increase in the housing supply, are hinting at the end of the boom.

“This is going to slow down the economy,” Thomas said.

But while that is a problem, he added, the economy does not revolve solely around housing. For example, office absorption does not hinge on home prices.

“I think we can continue to expand with the housing market decelerating,” Thomas noted.

He said he believes the economy will continue to expand, but at a slower rate. By 2010, office rents will hit the high they did in 2000, but vacancy rates will fall to average. Rents in the retail market will keep rising – albeit at a slower pace – and apartment investments will be promising as rents rise. But capitalization rates will not fall anymore.

“The expansion has legs,” Thomas said. “It will continue to grow.”

Investors will have to be pickier about where they put their money, however.

“This will not be a real estate market for the amateur,” Thomas added.

Apple of Their Eye

In Fairfield County, real estate experts are closely watching what is happening in New York City. Vacancy rates across the country are down in tier-one markets, which includes New York. In the city, 2004 showed very high leasing activity, with a slight drop in 2005. But 2005’s numbers still show a steady rise when compared to 2002 and 2003, according to Dean Shapiro, executive managing director at CB Richard Ellis.

It is significant that activity downtown is picking up, Shapiro said. Large blocks of space in Manhattan are depleting, and there is price escalation for the premium space.

That has prompted many companies to look for alternative occupancy scenarios. Some are going to New Jersey, but Fairfield and Westchester counties have historically had a correlation with the New York City market, and many of those companies could come to Connecticut.

The space crunch in Manhattan will benefit neighboring markets, but it is hard to say exactly where companies will go. Some – such as Swiss Bank and RBS Greenwich – already have come to Fairfield, and commercial real estate experts expect more financial services firms to continue. The area has cache for companies in financial services and insurance or reinsurance.

But because there is competition from Manhattan’s other neighboring markets, CB Richard Ellis Managing Director Robert Caruso told the crowd to encourage their communities and states to create incentive packages to help lure companies to Fairfield and Westchester counties.

“We are extremely bullish on New York,” Shapiro said. “In fact, we haven’t seen it quite so active in some time.”

There has also been some new construction in Fairfield County that could affect the market, Caruso said. But he noted that most of it is highly desirable and easily absorbed. New speculative construction from last year included 195 Danbury Road in Wilton, which houses the Wilton Surgical Center; 901 Main Ave. in Norwalk, which houses GE Commercial Finance; 601 Merritt 7 in Norwalk, which houses Marsh USA and FactSet Research Systems; 501 Kings Highway East in Fairfield, which houses Milward Brown International; 6 Corporate Drive in Shelton, which houses GE Capital and Intuit Eclipse; 100 Beards Sawmill Road in Shelton, which houses HealthNet; and 20 Westport Road in Wilton, which houses Louis Dreyfus and News America Marketing.

Last year, however, also saw some notable expansions. UPS leased 280,000 square feet at 201 Tresser Blvd. in Stamford, GE Commercial Finance took 87,000 square feet at 901 Main Ave. in Norwalk and Vertrue Inc. took 82,215 square feet at 20 Glover Ave. in Norwalk.

Expansions in Fairfield County took up a much larger segment of new leasing in 2005 than the year before. In 2004, expansions accounted for 25 percent of leasing, but in 2005 they accounted for 36.3 percent.