Subway Corp.’s 90,000-square-foot lease at 1 Corporate Drive in Shelton is a recent example of corporate office tenants upgrading to amenity-rich buildings for relocation. Image courtesy of R.D. Scinto Inc.
Recent market trends in Fairfield County office leasing underscore the need for developers to invest in building upgrades and tenant amenities – or consider conversions to more desirable uses.
More than a third of all leases inked in Connecticut’s preeminent commercial real estate cluster since the onset of the pandemic in 2020 have been in class A buildings, according to CBRE research.
Case in point: Subway Corp.’s June selection of 1 Corporate Drive in Shelton for its new corporate headquarters, in a relocation from Milford. The 288,000-square-foot office tower owned by Shelton-based R.D. Scinto Inc. boasts such tenant amenities as basketball and tennis courts, five cafes and a sitdown restaurant, and a roof terrace.
“They were the first ones in eastern Fairfield County to put in health clubs, food service, yoga studios and child care, and they really have set the example for the future of Fairfield County about how to amenitize an institutional-quality asset,” said Thomas Pajolek, executive vice president for CBRE in Stamford. “A lot of this is designed toward enhancing the tenant experience and giving people more reason to return to the office, while everybody’s kind of waiting for the dust to settle on the work-from-home phenomenon.”
CBRE research indicates that 36 percent of Fairfield County office leases since the second quarter of 2020 have been in buildings with high-end features or sought-after locations close to public transportation. Class A space now accounts for 28 percent of the office market in the county’s central business districts, and has attracted 44 percent of the downtown leasing activity since mid-2020.
But amid companies’ reluctance to make major office commitments in the hybrid work era, class A availabilities in the downtown submarkets have crept up during the same period from just under 28 percent to 28.5 percent, CBRE noted.
Transit Counts as an Amenity
Proximity to public transit also represents a growing divide within the office market, with properties close to Metro-North stations enjoying a premium on rents and occupancy levels.
In the county’s largest office submarket, Stamford’s 10.5 million-square-foot central business district, trophy-level office buildings near the Metro-North station have an availability rate of 20.7 percent, compared to 32.8 percent for other properties in downtown Stamford.
Although much smaller at 2.1 million square feet of office inventory, downtown Greenwich has maintained a similar advantage over suburban competitors. Its 4.2 percent availability rate is the lowest in a decade and lowest of any submarket in the tri-state region, according to CBRE.
The sluggish leasing and lower rents at second-tier office properties present a choice for landlords about whether to invest in capital improvements or consider an entirely different use of the property, such as multifamily housing.
Since 2012, 25 percent of Fairfield County’s class B office properties have been demolished or converted into other uses, according to CBRE research.
In Wilton, developers submitted plans in August to convert two office buildings at 523-529 Danbury Road into nine apartments. And in Darien, developer Bob Gillon is proposing an 88-unit apartment building to replace an office building at 3 Parklands Drive. The project would be reviewed under the state’s 8-30g affordable housing law.
The trend will continue as long as there are low-performing properties that have the physical characteristics suitable for conversion or demolition, Pajolek said.
“The floor plans have to work out [for a conversion], but in many instances developers are looking for the site more than the existing structure,” he said.
