Cushman & Wakefield, a commercial real estate firm, Tuesday released its year-end 2011 report for the Fairfield County commercial real estate market, indicating that the market is continuing in its slow but uneven recovery.
From the overall market fundamentals in 2011, Cushman & Wakefield reports:
• The potential for a double-dip recession seems to have passed;
• For the first time in three years, companies in Fairfield County are expanding;
• The vacancy level is persistently high, but is expected to slowly improve;
• Historically low interest rates have helped even poorly performing buildings continue to operate;
• The opportunity for tenants to trade lease term for rental concessions continues to expand;
• The difference in rental rates between the highest quality space and average space is growing, with pricing power going to the best-quality buildings in the marketplace.
Fairfield County's Class-A overall vacancy rate continued its upward trend, ending the year at 20.4%. This is the highest reported vacancy rate since 2002 and 63% higher than the healthy overall vacancy rate of 12.5% in 2007.
Despite the fact that Fairfield County vacancy rates seemed to have peaked in the fourth quarter, the Class-A direct average asking rental rates grew from $34.81 per square feet (psf) at year-end 2010 to the current $35.84 psf.
This increase was partially attributed to a $5.60 psf jump in Class-A direct average asking rent in the Stamford Non-CBD from $31.95 psf last year to $37.55 psf this year.
The submarket with the highest Class-A direct average asking rental rate continues to be Greenwich, registering at $54.37 psf, albeit a 28.8% drop from the $76.33 psf achieved in 2007.
Fairfield County leasing activity in 2011 for Class-A and -B combined was 2.4 million square feet (msf), 17.2% below 2010's leasing activity of 2.9 msf, but still significantly higher than the 2009 and 2008 activity of 1.8 msf and 2.1 msf, respectively.
There were six leases larger than 100,000 sf signed in 2011, compared to three in 2009 and only two in 2008.
The largest office lease of the year was Bridgewater Associates' 227,998-sf lease at 20 Westport Road (Wilton Woods Corporate Campus) in Wilton.
The largest renewal of the fourth quarter was Unilever's 108,819-sf renewal at 55 Merritt Boulevard in Trumbull.
Also completed this year was Chelsea Pier's 418,000-sf lease (376,300 sf of warehouse space and 41,700 sf of office space) and NBC Sports' 264,626-sf lease (172,566 sf of studio space and 92,060 sf of office space) at 1 Blachley Road in Stamford; Sikorsky Aircraft's 166,994-sf sublease at 1 Far Mill Crossing in Shelton; and Ryan Partnership's 104,054-sf renewal at 50 Danbury Road in Wilton. Cushman & Wakefield played a brokerage role in every transaction except the Ryan Partnership renewal.
Companies begin to expand
For the first time since mid 2008, Fairfield County companies expanded this year, which added to the improvement in leasing activity. After losing 3.6 msf (Class-A and -B) of occupied space to downsized tenants over the last three years, companies including FactSet Research Systems, GE, WR Berkley, NBC Sports, Bridgewater Associates, Sikorsky and Spinewave all expanded at one or more of their locations this year.
"Although we've seen company growth in Fairfield County in 2011, we're still only in the preliminary stages of a full market recovery," said Jim Fagan, senior managing director and market leader of Cushman & Wakefield's Fairfield and Westchester County regions. "Compared with 2009, the market is much healthier, but 2011 has certainly been a year of extreme fluctuations with vacancy levels and unemployment remaining stubbornly high. We're confident that we're well on our way to a full comeback, but there's still a long road to travel."
Overall absorption for Class-A space in Fairfield County during the fourth quarter totaled negative 29,683 sf, a dramatic decrease from last quarter's positive 119,097 sf and 4Q-10's positive 29,390 sf.
The Stamford CBD's overall vacancy rate reached 26.2% in the fourth quarter, an increase from 3Q-11's 25.8% and 4Q-10's 22.4%. This 3.8 percentage point increase from year-end 2010 to year-end 2011 is attributable to the addition of Legg Mason's 82,000 sf of sublease space at First Stamford Place; 45,906 sf of sublease space from UBS at One Stamford Forum; 23,800sf of sublease space from Statoil at 1055 Washington Boulevard; 13,043 sf of sublease space from Parexel at 750 East Main Street; 11,500 sf of sublease space from NetPerception at 1 Landmark Square; and 10,650 sf of direct space at 177 Broad Street. The Stamford CBD also has the largest contiguous availability in the county — 614,119 sf at 695 East Main Street.
Stamford's Non-CBD year-end 2011 Class-A overall vacancy rate was 26.6%, an 11.3% increase from last year's 23.9%, but an 8.3% decrease from 3Q-11's 29.0%. The Stamford Non-CBD's Class-A direct vacancy topped at 25.5% at year-end 2011 due to the 360,000 sf of vacant space added to the market by Time Warner at 290 Harbor Drive and by General Electric at 3001-3003 Summer Street.
The Greenwich Class-A overall vacancy rate has remained steady ending the year at 19.5%, in line with last year's 19.8%. Direct Class-A vacancy is at 16.3%, indicating that there's a substantial amount of sublease space on the market.
"There continues to be real opportunities in the market for tenants to either upgrade their facilities or to lower their overall occupancy costs even if the lease does not expire for several years," added Mr. Fagan. "The window for completing such tenant-favorable transactions, however, will be closing quickly as the economy improves."
Investment sales
The investment sales market also improved in 2011, with nine significant transactions (20,000 sf and above) in Fairfield County as compared with six sales in 2010 and only three in 2009. The most significant sale this quarter was 695 East Main Street in Stamford, vacant since 2009, which was sold by Lehman Holdings to Building & Land Technology in a Cushman & Wakefield arranged transaction for $30.3 million.
"With today's exceptionally low interest rates, we anticipate a much more active 2012 for the investment sales market," said Mr. Fagan. "In fact, we expect investment sales to make a much larger contribution to the overall health of the marketplace in the coming year."
Cushman & Wakefield is the world's largest privately held commercial real estate services firm. Founded in 1917, it has 235 offices in 60 countries and more than 14,000 employees. The firm represents a diverse customer base ranging from small businesses to Fortune 500 companies. It offers a complete range of services within five primary disciplines: Transaction services, including tenant and landlord representation in office, industrial and retail real estate; capital markets, including property sales, investment management, investment banking, debt and equity financing; corporate occupier & investor services, including integrated real estate strategies for large corporations and property owners; consulting services, including business and real estate consulting; and valuation & advisory, including appraisals, highest-and-best use analysis, dispute resolution and litigation support, along with specialized expertise in various industry sectors. A recognized leader in global real estate research, the firm publishes a broad array of proprietary reports available on its online Knowledge Center at cushmanwakefield.com.
Source: http://www.acorn-online.com/joomla15/theridgefieldpress/news/localnews/112250-fairfield-county-commercial-real-estate-improves-slowly-and-unevenly.html
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