Space is getting tight in Greenwich and an island office gem in Westport was the top office building sale as the commercial real estate scene in Fairfield County heated up in the second quarter.
According to reports from two major commercial real estate firms, strong demand for space in Greenwich has resulted in the submarket’s availability rate dropping substantially. CBRE lists the availability rate in the Greenwich Central Business District, or CBD, at 9.6 percent, the first time it has been in single digits since 2008.
The second-quarter report from Cushman & Wakefield shows that Greenwich’s overall vacancy rate fell to 12.8 percent amid a 45.6 percent increase in leasing demand.
Demand in Greenwich, mostly from financial services companies, is likely to drive up asking rents in the market and force prospective tenants to look into nearby buildings in Stamford, said Tom Pajolek, executive vice president at CBRE.
“There’s a lot of pressure on supply (in Greenwich),” he said. “Financial services is strong in Greenwich and that’s driving the tightness.”
The overall availability rate in the county remained flat compared to the first quarter at 24 percent, according to the CBRE report. Cushman & Wakefield reported a year-over-year availability increase from 23.2 to 24.5 percent.
“The market is healthier than it’s been in terms of year-to-date, which is encouraging,” Pajolek said. “The diversity and distribution of square footage is healthy and good for the market.”
Pajolek said the county as a whole is becoming less dependent upon financial services, which once dominated the market. The “right-sizing” of several financial services firms, particularly UBS and RBS in Stamford, has opened large blocks of space.
Those give-backs, in addition to space made available by Pitney Bowes and Starwood, contribute to Stamford’s high vacancy rate: 30 percent in the CBD and 26.8 percent in non-CBD. Stamford, however, did lead the county in volume with just under 400,000 square feet of new leases in the second quarter. That represents an 18.8 percent drop from the second quarter of 2017.
“We expect transportation-oriented markets like Stamford to begin improving as tenants take advantage of the increasingly vibrant aspect of the community,” Steve Fiore, research analyst at Cushman & Wakefield said in a release.
Another large block of space continues to skew the availability rate in the northern submarket, which includes greater Danbury. Most of the major office buildings are near capacity, but huge vacancies at Matrix Corporate Park push the submarket’s availability rate to 14.1 percent.
“If you take out that facility, that number drops dramatically,” Pajolek said.
He estimated that at least 400,000 square feet is vacant at the Matrix, the former Union Carbide headquarters on the city’s west side. The building is in foreclosure and CBRE is the court-appointed receiver.Read Full Article
Pajolek said the Eastern submarket’s availability rate of 15.9 percent is “healthy” and the Central’s rate of 22.5 percent is “a little high.”
The Eastern submarket accounted for Fairfield County’s largest transaction of the second quarter as Survey Sampling renewed 47,765 square feet at 6 Research Drive in Shelton. An undisclosed financial services company renewed 36,582 square feet at 2 Pickwick Plaza in Greenwich.
The quarter’s largest new leases were: Cenveo, 30,590 square feet at 200 First Stamford Place; Cyber Security Systems, 30,230 square feet at 42 Old Ridgebury Road in Danbury; and Lanxess, 28,962 square feet at 2 Armstrong Road in Shelton.
“There weren’t a lot of big deals, which tells me the market is not dependent on those types of deals,” Pajolek said. “We had a good quarter without the big deal.”
Fiore said vacancies may continue to rise slightly in the second half of the year as “tenants use their space more efficiently.”
The Cushman & Wakefield report cited the South Central submarket, which includes Westport, Fairfield and Southport, as having a 72.3 percent year-over-year increase in leasing demand.
Pajolek expects activity to remain strong for the rest of the year. Availability rates may also drop as office buildings with historically high vacancies are converted to residential properties and taken out of the commercial real estate data. He used the proposed mixed-used development that would include 195 residential units at 230 East Ave. in Norwalk as an example.
Maplewood Healthcare’s $23 million purchase of One Gorham Island in Westport accounted for the quarter’s top building purchase. Maplewood purchased the 41,000 square-foot building in late June.
Jim Fagan, Cushman & Wakefield’s managing principal for the Connecticut and Westchester markets, said the newly opened commuter rail line that connects New Haven and Hartford may have a positive impact for commercial real estate in Fairfield County.
“This is expected to help tenants in the county tap into a larger employee population by providing some much-needed commutation relief,” Fagan said in a release. “That could contribute to improving conditions for the Fairfield County office market.”
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