Winstanley Enterprises is planning a 500,000-square-foot companion tower to its 100 College St. lab-office building in New Haven.
The increasing popularity of urban workspaces and continuing demand for newly-built distribution space in the suburbs will drive leasing and development in key Connecticut commercial real estate submarkets in 2020, industry executives predict.
Conversions of long-vacant office space into multifamily housing and Yale University’s lease of 250,000 square feet at Winstanley Enterprises’ 100 College St. helped drive the downtown New Haven office vacancy rate to just below 12 percent, according to Cushman & Wakefield research.
Yale is using the office and lab space formerly leased to Alexion Pharmaceuticals to expand its partnerships with local life science startups, and the lease was the city’s largest in more than a decade, said Bob Motley, a Cushman & Wakefield director.
“Yale is spending a lot of money at 100 College St. and starting to look at other spaces in the market,” Motley said. “If they’re not investing in real estate and lab space, they risk being relegated to something less than Harvard and Stanford and their competitive peers.”
Could New Haven Support New Labs?
Average asking rents for class A office and lab spaces in New Haven range from $22 to $32 per square foot on a gross basis not including electric, said Evan O’Brien, associate director with Cushman & Wakefield’s New Haven county team.The rebound in office and lab occupancy hasn’t yet been accompanied by an uptick in ground-up development, however. That’s enabled landlords to increase rents, but the New Haven market doesn’t have many short-term availabilities for companies looking to lease over 50,000 square feet, Motley said.
“You don’t have many choices where to go, so that would limit New Haven’s ability to secure a big tenant in the market,” he said.
As if to reinforce the demand, Winstanley reportedly announced yesterday it was planning to build a 500,000-square-foot companion tower to its 100 College St. property on what is currently an empty lot next door at 101 College St.
Another potential opportunity is the former Winchester Repeating Arms campus, where the new owners of the 140,000-square-foot former Higher One headquarters are exploring redevelopment opportunities.
A partnership between Twining Properties, L+M Development Partners and Goldman Sachs Urban Investment Group acquired the property in August and rebranded it as Science Park as they prepare a $25 million investment in lab infrastructure.
Fall in Prices Offers Opportunity
John Keogh, senior broker in Colliers’ New Haven office, said the bulk of the local life science tenant demand is from small startups founded by Yale researchers.
“The big question is how many of the smaller companies are going to be successful, and if they are, how many of them will stay in New Haven rather than getting acquired by companies from out of town,” Keogh said.
The suburban office market in central Connecticut continues to suffer from lack of investment in aging buildings and tepid tenant demand. Vacancies in submarkets such as Wallingford and Meriden currently top 22 percent. The demand for medical office space is rising, O’Brien said, but such tenants prefer space in new build-to-suit projects.
“It’s not taking any of that excess glut of office space off the market,” he said.
Recent investment sales in which office buildings sold for a small fraction of their previous prices provide a potential opportunity for new owners to invest in capital improvement, Motley said. In Wallingford, an 80,000-square-foot office building at 35 Thorpe Ave. sold in October to Dallas-based Lone Star Funds for $3.8 million, a far cry from the $10.5 million price tag it fetched in 1998.
“A lot of these buildings need a fresh infusion of capital that probably goes into renovations, common areas and some exterior work,” Motley said. “I say to owners, ‘Hold firm on your [asking rents], and invest your money to upgrade the look and the feel of the building.’”
‘Stubbornly High Vacancy’ in Stamford
In Fairfield County, office vacancy rates hit a five-year high of 23.6 percent at year’s end, according to JLL research. The market’s largest availability is at 39 Old Ridgebury Road in Danbury, where Summit Development is repositioning the 1.2 million-square-foot former Union Carbide headquarters into 700,000 square feet of office space and is seeking approval to convert 400,000 square feet into apartments.
Cushman & Wakefield has attracted 10 leases from new tenants since the rebranding, while adding new common area amenities and advertising the county’s lowest rents for class A office space.
“They’re trying to attract tenants by giving them an awesome place to work with all of the amenities at a rate that nobody else can match,” said Jim Fagan, senior managing director at Cushman & Wakefield. “And that’s been appealing. It’s getting more traction and we’re doing better than the pro forma.”
Stamford, the county’s largest office submarket with nearly 16 million square feet of space, ended the year with a 26 percent vacancy rate. Fagan predicts that at least one large office lease in the 400,000-square-foot range could be signed in early 2020 near the Stamford train station, reflecting the preference for transit-oriented sites.
“Stamford has had a stubbornly high vacancy rate, but there are a lot of things in the works,” Fagan said.
Distribution Centers Drive New Development
While high vacancies continue to plague suburban office properties, developers are focusing on state-of-the-art warehouse space for new construction in markets near major transportation routes. Developers who’ve launched speculative projects enabling tenants to occupy space quickly have the edge, said Nicholas Morizio, president of Hartford and New Haven regions for Colliers International.
The region offers industrial rents roughly half those of Greater Boston and New York, with triple-net rents of approximately $6 per square foot on high-bay warehouse space, Morizio said. Developers continue to scout raw land or redevelopment of former big-box retail and manufacturing sites.
“I see more of that happening because it’s already been approved for commercial buildings,” Maurizio said. “Developers want land that’s ready to go. They don’t want to wait to get approvals. They want shovel-ready sites, so land owners have to spend money to get them shovel-ready.”
