Although Fairfield County’s commercial space is growing more expensive, several large lease deals were signed during the first half of 2006, including Terex Corp.’s 77,300-square-foot pact at the Nyala Farms Corporate Center in Westport.
It is getting more expensive to lease commercial space in Fairfield County as rising construction costs, small drops in vacancy rates, a healthy and overflowing market in New York’s Manhattan, and increased employment are taking their toll.
“The market is getting tighter, faster,” said Jim Fagan of Cushman & Wakefield in Stamford.
The area also has experienced a reduction in space returns – which, along with increased demand, has helped Fairfield County’s office market remain strong during the first half of 2006, according to a quarterly report from CB Richard Ellis.
According to Cushman & Wakefield, the overall vacancy rate in Fairfield County went from 16.8 percent during the first quarter of 2006 to 15.6 percent at the end of the second quarter. In downtown Stamford, prices are up anywhere from 25 percent to 30 percent. Fagan said he believes that trend will continue, and that the vacancy rate will decrease by more than 15 percent over the next 12 months.
Newer or modernized buildings that are well-located near transportation hubs and major roadways will see the largest decreases in vacancy, according to Fagan, and continued growth in the financial service firms will help increase absorption. In the next year there will be 10 firms – in addition to RBS/Greenwich Capital – that will execute or be close to executing leases in excess of 200,000 square feet, he said.
Those changes, and resulting hikes in rent, also will help less desirable buildings as some rent-sensitive tenants will have to look for new space.
Fagan said he also believes that “bargain rental rates,” which have been a factor in Fairfield County’s office markets since 1989, will largely come to an end.
“Rents will start to reflect the true value of the bricks and mortar as opposed to being driven by market oversupply,” Fagan wrote in a presentation.
Some highly desirable segments of the market have seen increases in rental rates of 30 percent over the past year, and the gap between the “asking” and the “taking” rental rates has narrowed, according to Fagan.
‘Organic Growth’
The market recorded more than 260,000 square feet of positive net absorption during the first half, most of which happened in the sometimes-struggling city of Stamford. That compared to a negative absorption of 493,800 square feet during the first half of last year. The availability rate fell from 17.8 percent to 15.3 percent over the past year.
According to Albert B. Ashforth Inc., the vacancy rate for Class A office buildings in Fairfield County remained steady from the first quarter of this year to the second quarter at 16.4 percent. That number is down from a vacancy rate of 17.1 percent one year ago.
The per-square-foot average asking price continues to increase, from $29.56 one year ago, to $29.90 last quarter and $31.21 at the end of the second quarter of 2006.
According to Fagan, because the vacancy rates deal with a relatively small percentage of the market, small changes in vacancy equal bigger changes in prices.
Several large leases were signed during the first half of the year, according to CB Richard Ellis. Boehringer Ingelheim Pharmaceutical expanded by 98,000 square feet on Old Ridgebury Road in Danbury; RBS/Greenwich Capital leased 86,000 square feet in Stamford’s central business district; Terex Corp. leased 77,300 square feet at the Nyala Farms Corporate Center in Westport; Arch Chemical leased 60,045 square feet in Norwalk; and Cablevision leased 60,000 square feet in Shelton. The spurt of leasing meant that the number of available contiguous blocks of 100,000 square feet or more declined from 13 to nine in the first half of 2006.
Larger transactions led the market, as mid-sized transactions dropped in the first half of the year, according to CB Richard Ellis. Although interest rate hikes from the Federal Reserve “sent mixed signals to the broader financial market, the health of the Fairfield economy was demonstrated through the expansion of tenants,” according to the company’s quarterly report. The expansion of local companies accounted for 47 percent of the total activity in Fairfield County through midyear, compared with 17 percent a year ago.
“Fairfield County’s organic growth within the market is notable,” according to the report. “Unlike the past, when one larger relocation would boost overall leasing velocity, demand has remained stable overall with only a slight increase in leasing velocity, driven by companies who have already had a presence in the market.”
Stamford’s positive absorption totaled 231,000 square feet in the first half of the year, according to CB Richard Ellis. That brought down the availability rate to 13 percent.
“Recovery in Stamford was particularly critical for Fairfield County as a whole as it continues to showcase the attractiveness of the area as a financial center,” said Robert Caruso, managing director of CB Richard Ellis’ Westchester/Fairfield office.
Leasing in Stamford totaled almost 643,000 square feet in the first half, which represented 38 percent of all space leased in Fairfield County. Leasing velocity, however, was 26 percent less than last year’s, which had unusually high activity.
In the first half of this year there were seven transactions over 20,000 square feet, while there were six a year ago. Transactions completed by RBS Greenwich Capital, Stamford Hospital, SAC Capital Advisors, TNS Custom Research, Outdoor Life Network, Telekurs USA and Bank of Ireland were among the largest deals in the first half.
Mead Westvaco, a Stamford company that is planning to move to Virginia, returned the largest block of space in the first half when it announced plans to leave 78,000 square feet of space at 1 High Ridge Park.
The bubbling activity in Stamford’s central business district has caused the average pricing to increase more than $6 per square foot over the past two years, from $28.56 per square foot in 2004 to the current per-square-foot level of $34.75.
