Cushman & Wakefield today released its year-end 2009 report for the Fairfield County commercial real estate market. As expected, market fundamentals continued to deteriorate as the market proceeded through a somewhat predictable, albeit fairly negative, cycle. Commercial office vacancy correlates very closely with unemployment and it’s not expected to begin to improve until later in 2010.
Class-A and B new office leasing activity was anemic in 2009 registering only 1.8 million square feet (msf) as compared with the three-year average of 3.5 msf achieved between 2005 to 2007. Class-A leasing activity in 4Q-09 was 383,293 square feet (sf), a substantial decrease from the 577,465 sf leased last quarter and an increase over the 227,785 sf leased in 4Q-08.
The overall available Class-A space in Fairfield County rose to 6.4 msf, a 34 percent increase from the 4.8 msf available in 2008, with 1,612,892 sf added to the market inventory in 2009. Fairfield County Class-A available sublease space (1,415,943 sf) accounts for 22.2% of all the space on the market. In Greenwich, however, sublease space accounts for 40.2% of all vacancies, due primarily to its high concentration of financial firms.
The increase in inventory is attributable to large additions of space brought to market in 2009 at 695 East Main Street in Stamford (509,000 sf from Gen Re); 600 Steamboat Road in Greenwich (170,000 sf from Greenwich Capital); and Purdue Pharma’s 158,000 sf of sublease space at 1600 Summer Street in Stamford. Major additions in 4Q-09 included: 60,000 sf of direct space (once reserved for Gen Re) at 120 Long Ridge Road in Stamford; 38,131 sf of sublease space from Hewitt Associates at 45 Glover Avenue in Norwalk; and 24,700 sf of sublease space from Torm USA at 1 Station Place in Stamford.
"Although some economists believe the recession to be over, the Fairfield County real estate market is lagging behind the economic recovery," said Jim Fagan, senior managing director and head of Cushman & Wakefield’s Fairfield and Westchester County regions. "We are, however, cautiously optimistic about market improvements in 2010, as users of commercial real estate start to feel more confident. Substantiating this is that there are several significant transactions totaling more than 600,000 sf that are expected to be signed in just the first quarter.”
Overall Class-A vacancy rates countywide in 4Q-09 registered 19.8%, up almost five percentage points from the 14.9% recorded last year at this time and on par with the 19.9% reported last quarter. The largest increases over the past year occurred in the Stamford Non-Central Business District (CBD) at 29.4% in 4Q-09 vs. 21.2% in 4Q-08; in the Stamford CBD at 22.5% in 4Q-09 vs. 15.5% in 4Q-08; and in Greenwich at 18.7% in 4Q-09 vs. 11.0% in 4Q-08.
Overall average asking rents for Class-A space continued to decrease this quarter countywide. At the close of the fourth quarter, asking rents for Class-A space averaged $35.13 per square foot (psf), a decrease from the $36.89 psf achieved last quarter and from the $36.29 psf average at the same time last year. Taking rents have also continued to drop by as much as 25 to 30 percent over the last 12 months, with increases in concessions, such as free rent and tenant-improvement allowances, lowering the overall rent package for the tenant even further.
Fourth quarter Stamford CBD Class-A overall asking rents averaged $43.88 psf, a decrease of $2.94 psf from year-end 2008. Stamford Non-CBD Class-A rents averaged $35.24 psf, a decrease of $3.56 psf from 4Q-08. While Greenwich Class-A direct rents remained the priciest in the county at an average of $58.05 psf, the submarket also experienced the greatest decrease of $11.05 psf from the same time last year.
Overall absorption for Class-A space in Fairfield County during the fourth quarter totaled negative 55,139 sf, a dramatic decrease from last year’s fourth quarter, which registered negative 345,393 sf and last quarter’s negative 788,905 sf.
Major transactions that occurred during the fourth quarter included Affinion Group’s sublease of 140,395 sf at 6 High Ridge Park in Stamford; Gartner Inc.’s 45,695-sf renewal at 35 Nutmeg Drive in Trumbull; and Noble Americas Corporation’s lease for 33,364 sf at 4 Stamford Plaza in Stamford.
Mr. Fagan comments, “There are real opportunities in the market for tenants to either upgrade their facilities or to lower their overall occupancy costs. Savvy tenants like Affinion are leading the way in taking advantage of today’s real estate market.”
FAIRFIELD COUNTY ECONOMY
After a challenging first half, Fairfield County’s economy stabilized during the second half of 2009. In the five months to November 2009, the county lost only 1,700 jobs compared with 7,800 in the first half of the year. Fairfield County did benefit from a financial services sector that, on a relative basis, was healthier than the rest of the country. While the national economy saw financial employment decline by 4.1 percent in the first 11 months of 2009, the Fairfield County financial sector only lost 2.1 percent of total employment and employment in November was higher than August. Overall, the region appears poised for growth along with the national economy in 2010.
INVESTMENT SALES
The investment sales market in Fairfield County continued its downward spiral in 2009, mirroring national trends. In 2007, there were 40 major sales (30,000 sf and above), while in 2008 there were eight sales and this year only one.
The average price psf for office buildings paid in 2009 was $59 psf, well below the average of $113 psf in 2008 and $251 psf in 2007.
The one major investment sale this year was the 1.2-msf 39 Old Ridgebury Road in Danbury, which was sold by GERA Danbury LLC to Matrix Realty Group for $72,400,000 or $59 psf. Other notable sales this quarter included the 20,000-sf 67 Holly Hill Lane in Greenwich, sold by 67 Holly Hill Lane Associates, LLC to Gambit Holly Hill Lane Associates for $7,100,000 or $341 psf and the 22,220-sf 19 Forest Parkway in Shelton, sold by Hasler, Inc. to 19 Forest Parkway, LLC for $1,970,000 or $89 psf.
“We anticipate that 2010 will continue to be difficult for investment sales,” said Mr. Fagan. “In fact, we expect to see more note sales and foreclosures because of the weak leasing market and lack of available financing. We remain confident, however, in the viability of the Fairfield County real estate market and, once the market stabilizes, investors will feel comfortable enough to re-invest.”
