Yale University appears likely to keep the title of New Haven’s major office space tenant for some time.
New Haven’s leasing market can breathe easily for now.
Yale University, the city’s major office space tenant, appears likely to keep that role for the time being, despite concerns that arose when Yale announced plans to purchase the former Bayer HealthCare complex in neighboring West Haven and Orange.
The acquisition of the Bayer complex will be incremental, said Gila Reinstein, associate director for Yale’s office of public affairs. There are currently no plans to give up any leased space in New Haven, she said.
That’s good news for the landlords in New Haven, where for the past several years Yale has been leasing new space at a rate of more than 100,000 square feet per year, according to a market report from commercial real estate firm Colliers Dow & Condon.
“Vacancy in New Haven’s office market has dropped steadily since 2001, when it stood well over 20 percent,” states the report. “An analysis of the numbers shows that Yale has been responsible for virtually all of the net demand that has brought vacancy to the mid-teens.”
The former Bayer facility has 17 buildings on 137 acres with approximately 575,000 square feet of laboratory space, 275,000 square feet of office space and 600,000 square feet of manufacturing and warehouse space. Yale taking ownership of that much office space prompted speculation that the university might want to vacate some of its leased space.
“There are a number of factors that will enter into [Yale’s] decision-making,” said Robert Adnopoz, sales manager for Colliers Dow & Condon’s New Haven office and a member of the Society of Industrial and Office Realtors. “Some [office space] they may need to have in close proximity to the [Yale-New Haven] Hospital, or near the main campus.”
‘Right Into Their Mode’
But if proximity to New Haven is not an issue for a given office, then Yale may decide to move it to the former Bayer site, Adnopoz said.
The office space at the former Bayer site, however, appears to be on the back burner. The first priorities are the laboratory and warehousing space, Reinstein said.
Adnopoz said he is not surprised.
“This fits right into their mode,” he noted. “It would be the easiest and most logical. We know that they were in need of additional warehousing space for their various departments.”
The Bayer acquisition is not the only new space for the university. In the last 10 years, Yale has built over 2 million square feet of new space in New Haven, and has plans to build 2 million more for use as academic space.
In addition to being the biggest office tenant, Yale is also the largest real estate taxpayer in New Haven. The university pays over $3.5 million in taxes on its nonacademic properties, such as its golf course and stores and restaurants leased to private businesses in the downtown area.
The New Haven office market has a total of 5 million square feet of space, and a 15.2 percent vacancy rate, according to the Colliers Dow & Condon report. If landlords are nervous about that rate climbing, it doesn’t show yet.
So far, Adnopoz has not seen any signs of property owners marketing to new tenants in anticipation of Yale leaving, he said.
While Yale maintains its dominant status in New Haven’s office market, the financial services sector remains the key player in Fairfield County.
Of the 2.1 million square feet leased during the first half of 2007, nearly 39 percent, or 863,000 square feet, was leased to this business sector, according to CB Richard Ellis’ second-quarter report for leasing activity in the county.
Some examples from the second quarter include lease deals signed by Guggenheim Partners in Darien, Lime Rock Partners in Westport, and Goldman Sachs, Silver Point Capital, Strategic Value Partners and Tudor Investment Corp. in Greenwich, according to a market report from Stamford-based corporate real estate brokerage Albert B. Ashforth Inc.
“The financial services and hedge funds have been taking a lot of space,” said Ted Hampe, chairman and founder of Westport-based commercial realty firm HK Group. “But I think there’s an opportunity for everybody now that the economy has improved.”
Hampe’s firm recently wrapped up six leases worth a combined $1.8 million and totaling 13,000 square feet of space. Four of those leases went to non-financial tenants.
Those tenants include the cereal company Bear Naked, expanding its space to 12,285 square feet in Norwalk; Speech & Language Consultants, leasing 2,000 square feet in Norwalk; commercial realty firm The Alliance Group, taking 5,300 square feet in Stamford; and attorney Robert Sullivan, leasing 1,242 square feet in Westport.
Central Fairfield County led the market in terms of space leased during the first half of the year, with 690,000 square feet, according to the CBRE report. Eastern Fairfield County boasted the lowest average asking rent for Class A office space, at $21.08 per square foot, according to Albert B. Ashforth. That same submarket also has the lowest vacancy rates for Class A at 9.6 percent, according to the report.
“There has definitely been a migration toward the east,” Hampe said. But the lower rents are just a part of the reason, he added.
Heavy traffic heading west into Stamford and Greenwich has made that a difficult commute, Hampe said. So some companies are moving to the eastern part of the county to avoid the congestion, he said.
Meanwhile, Greenwich continues to have the priciest average asking rent. The average asking rent for Class A space is $63.83 per square foot. Countywide, the average per-square-foot asking rent for Class A space posted its biggest jump in six years, finishing the second quarter at $36.77 versus $31.21 a year ago, according to the Albert B. Ashforth report. At the same time, the vacancy rate for Class A space in the county fell to 13.7 percent from 16.4 percent the prior year.
Hampe said it all comes down to supply and demand.
“As long as vacancy rates are low, the asking rates are going to go higher,” he said.
