NORTHEAST SNAPSHOT, AUGUST 2008

Hartford, Connecticut Office Market

During the late 1980s, the Hartford office market doubled in size and led the country with the lowest Class A vacancy for seven consecutive quarters, followed immediately by seven consecutive years of the highest Class A vacancy. Since then, Hartford County has remained a tertiary market with low-to-moderate annual absorption.

Presently, Hartford County’s office development activity remains relatively flat, though there are a few notable occurrences that have impacted market conditions. In the North of Hartford submarket, two large employers, ING and The Hartford Insurance Group, both with long-term commitments to the region, have taken advantage of attractive land pricing for build-to-suit opportunities.

In the West of Hartford submarket, West Hartford Center has gradually become the strongest destination location within the region. The demand for office space in West Hartford has prompted speculative development within the Blue Back Square mixed-use project. Despite market-high rental rates, vacancies are minimal. It is difficult to find large blocks of office space (greater than 10,000 square feet) within the West and East submarkets, which will no doubt bring new development to these areas.

Consolidation has been a key issue impacting the marketplace. One of the most significant office developments includes the completion of ING’s new 475,000-square-foot facility in Windsor, Connecticut. The Hartford is completing the first phase of its new 450,000-square-foot facility, also in Windsor, which is expandable up to 600,000 square feet. Both of these giants will be consolidating employees throughout the region into these new facilities. The Hartford intends to vacate from six leased properties within the North market, accounting for approximately 20 percent of the North submarket’s inventory.

The impact of these consolidations will continue to keep the rental rates low over the next couple of years. Impacted landlords will continue to make significant concessions to attract tenants to their affected buildings.

Another noteworthy transaction includes MetLife’s relocation and consolidation from the central business district (CBD) and an East suburban property to the North submarket. MetLife vacated approximately 370,000 square feet in one of Hartford’s towers and acquired Cigna’s 500,000-square-foot South Building located in Bloomfield, a North submarket town. The impact of MetLife’s purchase and relocation/consolidation adds 370,000 and 78,000 square feet to the vacancy rolls in the CBD and East submarkets, respectively. Another of Hartford’s major employers, St. Paul Travelers, has continued to absorb large chunks of office space within the CBD of Hartford; collectively, the total leased space exceeds 435,000 square feet.

Throughout Hartford County, Class A rental rates range from $18.50 to $35 per square foot, full service, depending on location and availability. The North submarket will continue to provide a low-cost leasing alternative (in cases, as low as $16.00 per square foot) for companies, while tightening-up submarkets, such as the East and West areas, can command up to $35.00 per square foot rates for office suites. Recent lease transactions within the CBD range from $20 to $26 per square foot, full service.

As of the end of the second quarter of 2008, the overall vacancy rate for the Greater Hartford region was 16.97 percent. The total Class A vacancy rate is 14.47 percent. The strongest office markets presently are the West and East, which provide Class A vacancies of 10.14 percent and 10 percent, respectively. These are the two market sectors investors and developers should continue to keep their eye on over the next 24 months.

— John J. Cafasso is a senior associate with the Hartford office of Colliers Dow & Condon.

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