Many Fairfield County office and retail properties are ripe for conversion to other uses, ranging from fitness centers to self-storage facilities, with limited demand for growth among office tenants and continuing e-commerce competition for brick-and-mortar retailers.
At a state-of-the-market luncheon sponsored by BOMA Southern Connecticut on Thursday, real estate executives said many commercial properties are likely to be repurposed for other uses.
The 40-million-square-foot Fairfield County’s office market had just 2 million square feet of leasing activity last year, the lowest figure since 2009, according to CBRE research. The availability rate hit 21 percent.
“This is a disturbing trend,” said Thomas Pajolek, executive vice president of CBRE’s Stamford office, attributing the stagnation to companies’ strategies of reducing space requirements per employee and an anti-business environment in Connecticut.
Office leasing activity was dominated by financial services and health care tenants, which generated five of the six largest deals during the fourth quarter, including Greenwich Hospital’s lease of 54,756 square feet at 500 West Putnam Ave.
A bright spot was Charter Communications’ October commitment to expand in downtown Stamford with a 500,000 build-to-suit headquarters and hire 1,100 new employees, aided by a $10 million loan and $10 million in tax credits from the state Department of Economic and Community Development. As new construction, the transaction is not reflected in market statistics that peg Stamford’s office vacancy rate at 35 percent.
New York banks and investment companies are expanding digital banking and marketing divisions in the suburbs, a trend that is likely to generate demand for office space in Westchester and Fairfield counties, predicted Al Mirin, executive managing director at Cushman and Wakefield in Stamford.
“The good news is the financial service tenants are back,” Mirin said.
Investment sales activity lagged in 2017, Mirin said, but is accelerating following the Trump administration’s tax law changes, which retained 1031 like-kind exchanges. The tax mechanism is a way for investors to defer paying capital gains if they sell one property and buy a similar asset within 180 days.
Retail landlords continue to feel the effects of online competition, said Jessica Curtis, a senior managing director at Newmark Knight Frank’s Stamford office. And General Growth Properties’ 700,000-square-foot SoNo Collection mall under construction in Norwalk is competing for tenants with Westport and Greenwich downtown retail districts, Curtis said.
So-called “omnichannel” e-commerce and brick-and-mortar retailers, such as men’s clothier Bonobos, are having success with smaller showroom-style store formats. The decline of traditional department store anchors has prompted landlords to recruit more restaurants and fitness centers.
“Every landlord in the country is looking for activation of a mall or street retail,” Curtis said. “How do we get people in the store and off the Internet? Fitness is a way to do that.”
Walk-in medical clinics are another non-traditional use with a growing presence in retail properties, CBRE’s Pajolek noted.
“They’re using retail disciplines to identify where they want to put these spaces,” he said. “Convenience and signage are big.”
Some underperforming retail properties are ripe for conversion to self-storage facilities, said Cameron Paktinat, a project manager for the William Warren Group, a Santa Monica, California-based developer.
The company is expanding its East Coast footprint and looking for acquisitions in the tri-state area, where the industry’s inventory lags the national average. The recent decision by Sam’s Club to close 63 stores nationwide, including stores in Manchester and Orange, could provide another opportunity to redevelop big box sites.
“(Self-storage) used to be industrial property tucked away from major roads,” Paktinat said. “Now it’s become a destination. We’re looking for sites near transportation hubs, multifamily housing and some other retail.”
