MARKET HIGHLIGHT, FEBRUARY 2006

CONNECTICUT MARKET HIGHLIGHT

Connecticut Retail Market

After several years of little retail development, construction activity in most major markets in Connecticut is hotter than it has ever been. Throughout the state, lifestyle centers are popping up near established trade areas, while casinos are driving new retail development in eastern Connecticut and the revitalization efforts in downtown Hartford are starting to payoff with a retail boom.

In West Hartford, more than 840,000 square feet of retail space was under construction during 2005, according to New York-based research firm Reis Inc. That number is more than triple the amount of development in previous years. One of the largest projects to break ground recently was the 550,000-square-foot Blue Back Square. The $150 million, mixed-use center has reportedly landed such high-profile tenants as Crate & Barrel and a movie theater.

Over the next 5 years, construction in Hartford is expected to decrease significantly. In fact, only 211,400 square feet of retail space is expected to come on line between 2006 and 2010, according to Reis. Absorption is expected to be in line with new development.

Although vacancy rates in Hartford dropped slightly in 2005 to 7 percent, the amount of new construction delivered is expected to soften the market slightly. Rental rates increased only 1 percent during 2005 and aren't expected to rise much more than that in the coming year.

All of the efforts to revitalize downtown Hartford are coming to fruition. Plenty of high-end residential is being developed in the city center, attracting new retailers and restaurants. For example, media mogul Ted Turner's Ted's Montana Grill and Moe's Southwest Grill are just two new concepts that have come to town.

Toward the east near Waterford and the Foxwoods Resort, new jobs created by the casinos are creating significant demand for retail. Moreover, other new businesses have entered the region. For example, Pfizer has a large research facility nearby. The area, which has been under-retailed for several years, is finally starting to be built out now that the casinos are well established. Big box retailers, along with small inline tenants, have followed rooftops. The region is attractive to many year-round residents and tourists because of its proximity to the coast and Interstate 95.  

Toward the southern part of the state, New Haven and Fairfield County haven't seen much new development, despite the fact that the economies in both areas are booming with jobs. Throughout the state, however, investor demand for retail properties is strong, particularly infill projects. In Bristol, for example, an older grocery-anchored center attracted seven bids before selling to a private investor for more than the list price.

— Joseph French is a senior advisor for Sperry Van Ness.

Westchester County Office Market

The 2005 Westchester County, New York, office market improved from a landlord's perspective in comparison to the bumpy ride in 2004 according to an office market report from Cushman & Wakefield. The overall vacancy rate finished the year at 14.9 percent, down from last year's ending vacancy rate of 16.8 percent.  

“In 2005, large blocks of available space virtually disappeared from the inventory, yet there are an abundance of tenants in the market,“ says Jim Fagan, senior managing director and head of Cushman & Wakefield's Westchester County, Fairfield County and Long Island offices. “These indicators show the advantage may have swung in favor of owners, providing the opportunity to increase rents and curb generous concessions used to attract tenants.”

New leasing activity in the county slowed in 2005, totaling 1.7 million square feet compared with 2.1 million square feet in 2004. In part, the smaller aggregate total in 2005 was due to the lack of any large leases being signed (100,000 square feet and higher) as was seen in 2004, and transaction velocity year-over-year was also down 10.6 percent. Renewal activity across the county was strong in 2005, with companies like Empire HealthChoice recommitting to 105,000 square feet in the northern submarket and IBM renewing for 43,905 square feet in the central submarket.

The eastern market attracted the lion's share of leases in 2005, accounting for more than 40 percent of Westchester's leasing activity. Major leases in the submarket included Bridgecom International, which relocated into 57,000 square feet at 800 Westchester Avenue from the central submarket and Preferred Investment Solutions at 900 King Street for 31,922 square feet. The robust leasing activity translated into 94,286 square feet of positive net absorption for the year and a 6.2 percentage point decrease in overall vacancy.

The Westchester County investment market closed out 2005 with a bang, as Eastridge sold its 1.6 million-square-foot portfolio to Reckson for $255 million. In 2005, more than $400 million in office properties were traded, exceeding the totals of 2004 and 2003, and indicating that buyers continued to pursue office properties aggressively as investments. Other notable sales to close in 2005 were Heritage Property Trust's purchase of 2-4 Gannett Drive in the White Plains non-central business district (CBD) for $42.5 million and 120 Bloomingdale Road in the White Plains CBD for $27.3 million.

“The investment sales market in Westchester County was very active in 2005,” says Fagan. "Low interest rates and the attractiveness of real estate as an investment vehicle continued to fuel the sales sector.”

Fairfield County Office Market

The Fairfield County, Connecticut, office market finished 2005 on a strong note, experiencing positive absorption and an improving vacancy rate, according to an office market report from Cushman & Wakefield. A strong contribution to market activity was a 255,460-square-foot lease UBS signed to occupy the Purdue Pharma space at 201 Tresser Boulevard in Stamford. As a result, the county saw positive overall absorption in 2005 and the overall vacancy rate fell to 17.3 percent from 18.1 percent at year-end 2004.

“There is significant opportunity in Fairfield County for large tenants in the market,” says Jim Fagan, senior managing director and head of Cushman & Wakefield's Fairfield County, Westchester County and Long Island offices. “With more and more companies poised for growth, we expect to see a number of noteworthy leases transacted during the course of 2006.”

Leasing activity in the county totaled 3.5 million square feet, topping the 2004 total of 2.8 million square feet despite the slowdown in transaction velocity in the fourth quarter. Aside from the UBS deal, another major transaction that closed in the fourth quarter was the leaseback of 119,344 square feet by Unilever PLC at 33 Benedict Place in Greenwich. General Electric, a long time major tenant in Fairfield County, capped off a busy year of leasing, relocating its consumer finance division within Stamford to Long Ridge Office Park for a total of 278,602 square feet, leasing 87,000 square feet at the newly built 901 Main Avenue in Norwalk and signing a 43,829-square-foot lease in the Danbury submarket at 83 Wooster Heights Road.   An underlying trend in Fairfield County's leasing market during 2005 was a flight to quality. Properties that offer a wide array of amenities with easy access to the highway or train station generally have low vacancy rates and ask higher rents. Metro Center, located adjacent to the Stamford train station, is more than 95 percent occupied with asking rents starting at $50 per square foot. In comparison, properties with fewer amenities and slightly inferior location have asking rents 40 to 45 percent less.

The Fairfield County investment market experienced a banner year, with sales totaling 2.5 million square feet and more than $600 million. Two Greenwich properties broke the $700 per square foot watermark — 33 Benedict Place was purchased by the Willett Companies for $87.5 million, or $733 per square foot, and 2 Soundview Drive was bought by Ceruzzi Properties for $739 per square foot. More astonishing was the $243 average price per square foot, an 8.5 percent increase over last year's $224 average per square foot. Over the same time period, Class A asking rents have increased by 2.1 percent, indicating investors are bullish on the growth of rental rates in the future and the stability of property values in the county.

©2006 France Publications, Inc. Duplication or reproduction of this article not permitted without authorization from France Publications, Inc. For information on reprints of this article contact Barbara Sherer at (630) 554-6054.