MARKET HIGHLIGHT, JUNE 2005
CONNECTICUT MARKET HIGHLIGHT
Connecticut Industrial Market
The Connecticut industrial market has shown increased activity since the fall 2004 presidential election. Prior to the election, the active sectors were smaller, owner-occupied buildings (under 20,000 square feet) and the investment market. Sale or lease activity of larger industrial facilities was flat, and most notably absent from the market were national companies.
Since the election, larger users have returned to the market — focused mostly on warehouse/ distribution requirements. Demand by locally owned companies to purchase their own facilities has continued. Well located modern buildings are in short supply and we have seen price appreciation in many cases. Investors continue to be active in looking for investment properties of all types. Especially in demand are net-leased properties with credit tenants, although investors are also attracted to properties with vacant space as they believe there is upside in the market. Favorable interest rates as well as significant demand continue to hold or exert downward pressure on cap rates.
There were several transactions involving larger facilities that occurred at the end of the fourth quarter 2004 and during the first quarter of 2005. The submarket north of Hartford was very active. The 296,691-square-foot former Hamilton Standard facility in East Windsor was purchased by an investor with tenant in hand. The 279,800-square-foot former ADVO facility was also purchased in the beginning of 2005 by an investor who plans to renovate and modernize the facility. Permasteelisa Cladding Technologies expanded and renewed their lease for 280,000 square feet in Windsor. The 130,000-square-foot former Lego facility in Enfield is under contract and was anticipated to close in the first quarter. There is a 150,000-square-foot build-to-suit facility for Datamail currently under construction in Windsor. There is also land under contract in Suffield by WMG, which has approvals to construct 50,000 square feet with room for expansion to 150,000 square feet.
The market continues to favor facilities with clear height above 24 feet and column spacing of at least 40 feet by 40 feet, with 50 feet preferred. Build-to-suits are a viable alternative to existing facilities but land availability and the time delays associated with approvals, permits and construction are factors to be considered. We have a positive outlook for the future as demand is increasing and quality modern well-located facilities are in short supply.
— Keith J. Kumnick, SIOR, is a managing principal with Colliers Dow & Condon in Hartford, Connecticut.
Hartford Investment Sales Market
Continuing interest in stable real estate assets combined with a generally positive leasing market helped to stimulate Hartford’s investment sales market in the first quarter of 2005 – though not at the same strong pace as the previous few years. Investors are still aggressively looking to place capital, but the lack of product offered has had an impact on actual transactions completed.
In 2004, 16 Class A office buildings traded hands in the Hartford area, marking the most activity in the market since 2000. This year, in contrast, relatively few investment offerings are currently available in the market as most sellers faced with a decision have already divested or refinanced. Sale volume in 2005 activity, therefore, will most likely not reach the same heights as the previous year.
Properties on the market, however, will still garner a lot of attention. Players expected to remain active in the market include Grunberg Realty, Mark Greenberg, Northland, The Fremont Group, Nutmeg Management and Professors Capital. New Boston Fund will also remain among the more prominent groups, while continuing to divest itself of certain properties in central Connecticut. More and more capital is also originating from New York-based investors, which are rapidly becoming a significant force in the Hartford market as prices in Manhattan and surrounding areas continue to rise. Grunberg Realty, for example, purchased 280 Trumbull Street, a Class A asset, in late 2004 for $65 million, or $100 per square foot. With the increase of LIBOR over the past few months, a growing number of these investors are financing their purchases with long-term fixed debt.
As long as the leasing market continues to improve, the investment market should remain strong, even amid rising interest rates. The city of Harford, in particular, continues to attract attention from investors, especially for non-office properties. With 650 multifamily units either recently completed or currently under construction, and the addition of the newly constructed convention center and hotels such as the Marriott and Homewood Suites (slated to open later in 2005), the market is poised for growth that has not been seen in more than 15 years.
— Patrick Mulready is a vice president and John McCormick is an executive vice president in the Hartford, Connecticut, office of CB Richard Ellis.
Fairfield County Office Market
Commercial office market recovery has varied greatly from submarket to submarket across Fairfield County. Over the past few quarters, Norwalk has been the hottest location in the county based on leasing activity and development. Because of its substantially lower rental rates, averaging $28.33 per square foot for Class A space and $26.58 per square foot for Class B space in the first quarter, Norwalk attracts companies from Greenwich and Stamford. Greenwich rates have been especially expensive; money management firms are driving rental rates to record highs. Class A rental rates in Greenwich now average $44.05 per square foot, though asking rents near the train station are closer to $70 per square foot.
Demand in central Fairfield has been high enough to warrant several new development projects recently. Two buildings, owned by Building and Land Technology and developed by O & G Industries, were completed in Norwalk in January. Totaling 637,150 square feet, 801 Main Avenue and 901 Main Avenue made a splash on the market when they delivered in the first quarter. Though 801 Main Avenue was pre-leased to Diageo PLC in 2004, the 360,150 square feet at 901 Main Avenue remains available.
In addition to the new buildings, Blackrock Realty is planning to construct four 200,000-square-foot, mixed-use buildings at the 21 Black Rock Turnpike development site in Fairfield. The property, which will be built in phases and called the Fairfield Metro Center, will also include a new Metro North railway station. The ceremonial ground-breaking for the first building was in August of 2004; it is expected to be complete in November of 2007.
The Stamford central business district has been in a slump since last year; availability has risen steadily and currently stands at 24.7 percent. There are at least six Class A properties that still have blocks of available space greater than 100,000 square feet. These locations provide a high quality option for tenants seeking large blocks of space. The high quantity of available space should keep rents relatively low throughout the next year, staying close to the first quarter averages of $35.44 per square foot for Class A space and $25.57 per square foot for Class B space.
Although Stamford has struggled over the past couple of years, an increase in activity and a positive outlook for the central business district have prompted discussions for new development projects. Tower 2000 Stamford, at the intersection of Tresser Boulevard and Greyrock Place, is a proposed 495,000-square-foot Class A office building to be built by Milstein. At 24 Richmond Hill, Louis Dreyfus plans to build a 575,000-square-foot office tower that will be the tallest building between Boston and New York City.
— Andrew Carney is an associate director of Grubb & Ellis Stamford.
Connecticut Retail Market
Developers continue to seek opportunities in Connecticut, one of the nation's most affluent retail markets. Efforts include upgrading or redefining existing retail concepts in very productive areas. At the same time, developers are reaching out to less populated and more rural locations.
Boston Post Road in the Milford/ Orange/West Haven corridor has been a longtime magnet for shoppers. Westfield Connecticut Post is adding 400,000 square feet, including Target and Dick's Sporting Goods. Ceruzzi Properties is developing Milford Crossing on 400,000 square feet on neighboring property. And just down Boston Post Road, CBL & Associates will break ground this fall on the 140,000-square-foot Milford Marketplace lifestyle center. Thus, in this half-mile span alone, close to 1 million square feet will come onto the market in 2006.
Similarly, Stamford's vibrant downtown has seen Target and Burlington Coat Factory open in the past six months. Taubman Centers, owner of Stamford Town Center, recently announced it would redevelop 160,000 square feet of retail space (formerly Filene's) so it would better interface with downtown.
The Danbury region has seen retail growth along the Route 7 corridor spill over into New Milford in Litchfield County. Silvermine Development's Brookfield Life Style Plaza (170,000 square feet) will be located at the new termination of Super 7 near New Milford where Breslin Realty owns 40 acres and Westrock Development has plans to develop close to 13 acres. The state is widening Route 7 in New Milford to accommodate the growth in population and commercial activity.
Downtown Hartford, neither an affluent nor a growth market up to now, is about to unveil its 540,000-square-foot convention center at Adriaen's Landing, along with a 400-room Marriott Hotel. The Adriaen's Landing concept includes retail, entertainment and housing components meant to integrate downtown and the convention center. The state has qualified H.B Nitkin Company of Greenwich to develop 150,000 square feet of retail and up to 400 apartments. The Hartford Civic Center is undergoing an extreme makeover executed by Northland Development that will add housing units and street-level retail.
Southeastern Connecticut is home to Connecticut's four major tourist attractions, Foxwoods, Mohegan Sun, Mystic Aquarium and Mystic Seaport. Breslin Realty is developing 550,000 square feet along Interstate 95 in Stonington at the Rhode Island border. Interstate 395 runs through rural eastern Connecticut. Besides serving as a feeder to Mohegan Sun and Foxwoods, I-395 has attracted impressive retail development like Ceruzzi Holdings' 500,000-square-foot The Crossing at Killingly Commons in the "Quiet Corner" in Windham County.
The center of gravity of retail development may shift more toward eastern Connecticut over the next 5 years. Within a few miles of the casinos, Utopia Studios plans to build a $1.6 billion entertainment complex to include 4 theme parks, which it predicts will become the Northeast's leading family destination and the nation's third most visited theme park. Movie studios and a student performing arts college, Utopia School of the Arts, which is planned to have 6,000 students, will complement the theme parks.
— Bill Grad is a director of leasing with Aries, Deitch & Endelson in Hartsdale, New York, and Greenwich, Connecticut.
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