Vacancy rates are dropping in Fairfield County’s office market, in large part because of recent small-business expansions. The occupancy rate at this building at 1200 High Ridge Road in Stamford was nearly 100 percent at the end of the first quarter.

It’s been a quiet first quarter for Fairfield County’s office market, but the expansions of small businesses in the region are helping to drive down vacancy rates and giving commercial brokers hope for the rest of 2006.

“[We’re seeing] the return of the smaller-office user,” said Bob Miller, a partner with Prudential Connecticut Commercial Real Estate in Stamford. “It’s kind of like the first robin of spring.”

Cities like Stamford and Norwalk, in particular, are seeing the effects of the small-business expansions, Miller said. Financial services firms have long called lower Fairfield County home, but the market is getting slightly more diverse with expansions of high-tech, marketing and other firms. They are “getting legs and needing more space,” Miller said.

“I think it will [get better],” he said.

But there has not been much of an influx from companies outside of the county that are looking for space, according to Gerard Hallock, senior vice president of Albert B. Ashforth Inc. in Stamford.

Hallock characterized the first quarter of 2006 as very quiet, but typical of the time of year. There were no substantive deals, and although the market is making progress in vacancy, it remains relatively high, he noted.

“There’s not real growth,” Hallock said. “There are just people moving around. Leases are coming up; people are taking advantage of the market.”

According to Ashforth, the vacancy rate for Class A buildings in Stamford was 19.4 percent at the end of the first quarter, down slightly from 19.9 percent at the end of last year. The vacancy rate for Class B buildings was 23 percent last quarter, down from 25.1 percent at the end of 2005.

In Greenwich, the vacancy rate for Class A buildings at the end of last quarter was 16.2 percent, up from the 10.4 vacancy rate at the end of last year. The vacancy rate for Class B buildings at the end of the first quarter of 2006 was 5.6 percent, up from 4.3 percent at the end of last year.

‘Sublease Overhang’

Despite the numbers, Greenwich remains the tightest market in the county, Hallock said. Danbury’s Class A vacancy rate remains nearly the highest in the county, at almost 23 percent.

In markets like Stamford, however, the expansion of small businesses is the reason vacancy rates are dropping, Miller said. The market is “starting to crawl out from under the sublease overhang,” he said. Miller’s firm has found success with 1200 High Ridge Road in Stamford, which was near capacity in the first quarter of 2006.

According to CB Richard Ellis, the improving economy has helped the office market gain momentum in the first quarter.

“[The market], fueled by a steadily advancing stock market and relatively stable consumer spending, created an atmosphere of confidence,” according to a report from CB Richard Ellis.

Although Ashforth’s statistics showed a slight increase in vacancy county-wide – from 16.1 percent for Class A buildings at the end of 2005 to 16.4 percent at the end of last quarter, and from 18.4 percent last year for Class B buildings to 18.8 percent at the end of last quarter – CB Richard Ellis’ statistics showed positive absorption for the quarter. Firms often track different buildings in the same area.

“Demand remained consistent or surpassed last year nearly all over the area, while space returns continued to slow, resulting in positive absorption and lower availability compared to the same period of 2005,” according to CB Richard Ellis’ report.

Local expansions accounted for much of the demand. Leasing remained similar to last year’s, despite fewer completed transactions – 127, compared to 134 in 2005 – at 1 million square feet.

An increase in corporate confidence also prompted a slowdown in space returns, particularly in Stamford, according to the report. That led to positive absorption of more than 300,000 square feet countywide compared to the same time last year. Availability across the county fell 10 percent to 6.7 million square feet and the availability rate almost 2 percentage points to 15.2 percent – its lowest first-quarter level in five years. Landlords in some key properties also raised asking rents $1.14 per square foot, or 4 percent, to $28.72 per square foot.

“[The increase in rents is] another strong sign that Fairfield’s office market has really turned a corner,” said Robert Caruso, managing director of CB Richard Ellis’ Westchester/Fairfield office in Stamford, in a prepared statement. “Throughout the downturn, competition for tenants centered around aggressive pricing and incentives. Landlords are raising rents now because they feel confident in the market’s prognosis for the near future. With three straight quarters of strong demand, positive absorption and lower availability, they certainly have a good basis for their decisions. The amount of space leased in large deals has increased each quarter, and most of that activity came from local companies. Given these strong fundamentals, 2006 could prove another year that surpasses historical averages.”