NORTHEAST SNAPSHOT, OCTOBER 2007

Fairfield/New Haven Counties, Connecticut Office Market

In the past year, the Fairfield County area has seen an incredible turnover in ownership of office properties at sales prices far exceeding anyone’s expectations. The recent sales of 55 Railroad Avenue and Pickwick Plaza in Greenwich neared or exceeded $1,000 per square foot.

In Stamford, Equity Office Properties Trust’s 1.7 million-square-foot portfolio was sold twice in a matter of months. Blackstone bought it from the REIT and plans to re-trade the portfolio to RFR Realty LLC for $850 million. In addition, rents throughout the area are rising as the new owners boost rents at their office properties in a bid to obtain a reasonable return on their investments.

Office development in Fairfield County is also taking off. The Royal Bank of Scotland (RBS) is developing a 500,000-square-foot building in Stamford for its own use, and Davis Marcus Partners just began construction of a 161,222-square-foot property at 40 Danbury Road in Wilton.

There are also some major nonuser-driven projects under development in Fairfield County that include office components. Antares Real Estate Development is proposing the redevelopment of more than 80 acres at the South End of Stamford. Harbor Point District would include 4,000 new housing units, 400,000 square feet of retail space, offices, two hotels, and more than 10 acres of new parkland and waterfront trails. While the project is years away from completion, Antares has begun demolishing existing facilities at the site.

Spinnaker Real Estate Partners and Greenfield Partners are developing District 95/7 in Norwalk’s historic SoNo district. The mixed-use project encompasses residential property, a hotel, approximately 500,000 square feet of Class A office space and 125,000 square feet of retail space. I.park, located along Route 7, is a 300,000-square-foot facility in Norwalk being renovated and retrofitted to LEED certification. Norwalk Hospital recently committed to 100,000 square feet of office space at the building.

Fairfield is also thinking green with two LEED-certified developments in the works in the county. W&M Properties is building Metro Green in Stamford, which includes a 17-story, 350,000-square-foot office building and 220 housing units. Metro Green is expected to break ground in 2008, with completion set for 2010. In addition, Blackrock Realty LLC has all the permits necessary to begin  construction of its Fairfield Metro Center project in Fairfield. The development includes a new Metro-North railroad station, a hotel, retail space and 800,000 square feet of commercial space. The first phase of the project includes the construction of the first of four office buildings, the hotel and the train station. The project is scheduled for completion in early 2010.

Several of the projects mentioned above have one very important aspect in common — they are all located at or near a train station that provides a direct link to New York City. These transit-oriented developments facilitate the commute of workers to and from the properties and provide employers with access to large portions of Connecticut and the Manhattan area’s labor market.

New developers are also getting the chance to flex their muscles in the Fairfield office market: : Building and Land Technology has finished development of the 348,000-square-foot 901 Main Avenue in Norwalk. The company recently completed the lease up of the speculative Class A office building after signing General Electric Real Estate to 150,000 square feet. Davis Marcus Partners is another successful player in Connecticut. The company has just begun construction of the aforementioned 40 Danbury Road building and will soon get under way on the 81,950-square-foot 60 Danbury Road in Wilton.

The Greenwich office market is primarily driven by hedge funds and private equity firms. Stamford benefits from having a wide variety of tenants in a number of industry sectors but is mostly an institutional market. GE Asset Management, GE Real Estate and GE Money are among the largest space users in the Stamford area, as is UBS, which houses its capital markets division in the city. Other major corporations with headquarters located in Stamford include Pitney Bowes Inc., General Reinsurance Corp. and Purdue Pharma LP, which recently signed a lease for 150,000 square feet at the newly renovated 1600 Summer Street.

Several major leases have been signed recently. In April, Goldman Sachs signed a deal to take 124,000 square feet at Greenwich American Centre at 1 American Lane in Greenwich. In May, AQR Capital Management leased 65,000 square feet at the 126,810-square-foot 33 Benedict Place in Greenwich. The building is currently occupied by Unilever PLC, which will vacate the site next year. In June, Xerox Corp. subleased three floors, totaling 108,000 square feet, at The Towers at 45 Glover Avenue in Norwalk from Hewitt Associates LLC. Hewitt will remain in the building. Also in June, General Electric Real Estate, a division of Fairfield-based General Electric, relocated its headquarters to 901 Main Avenue in Norwalk.

Greenwich claims the highest rents in the Fairfield County area given its close proximity to Manhattan and its high concentration of hedge funds and private equity firms. Strategic Value Partners recently broke the $100 per square foot barrier for the first time in Greenwich history when it signed for 43,000 square feet at 100 West Putnam Avenue. Office properties in the area around the Greenwich central business district recorded average asking rents of $85 to $90 per square foot at mid-year 2007. Office space in buildings that are not within easy walking distance of the train station saw asking rents around $50 per square foot.

Further north, in Stamford, office properties near the train station posted asking rents of $50 to $60 per square foot. Metro Green, upon completion, is expected to achieve asking rents of about $70 per square foot. Class A office properties that are not near the train station saw asking rents of approximately $30 to $40 per square foot.

As a result of improving leasing velocity, vacancy rates in Fairfield County have declined. The Class A vacancy rate finished the second quarter of 2007 at 11.3 percent, down from 16.2 percent the previous quarter.

Looking forward into the end of 2007 and into 2008, developers and brokers should pay attention to the office markets along the Route 7 corridor from Norwalk to Wilton as an active development area. Existing buildings have reached 95 percent to 100 percent occupancy, spurring new construction.

Fairfield is another area to watch. The city never really had much of a commercial market until Blackrock Realty LLC announced its Fairfield Metro Center project. Real estate professionals are excited about the prospects for the Fairfield area once Fairfield Metro Center is completed in 2010.

— Gerard Hallock is a managing director with Jones Lang LaSalle in Stamford, Connecticut.

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