Slow improvement forecast for region's commercial realty market
Published 5:00 pm, Thursday, September 23, 2010
The improvement of the Fairfield County commercial real estate market rests on the prospects for the nation's economy, and the staff at Cushman & Wakefield's Stamford office sees an uptick coming, but not before the region continues its slog through higher-than-normal vacancy rates and declining asking rents.
As the county's Class A office vacancy rate hovers at 19.5 percent, landlords will continue to offer deals to lure companies and retain tenants, said Jim Fagan, senior managing director and head of Cushman & Wakefield's Fairfield and Westchester County region.
"With a decided downward trend, due to the fundamentals of commercial real estate and how the marketplace functions, the region will be in a state of malaise for the foreseeable future. There is sentiment, however, that the real estate market is at the bottom of a cycle and will be better in the future," Fagan said this week in announcing the third-quarter report for the Fairfield County office market.
Class A new office leasing activity for the quarter was 422,614 square feet, a steep drop from 653,165 square feet in mid-year and 632,299 square feet in the third quarter of 2009, according to the firm.
"2009 was downright scary, but 2010 is better. We clearly hit the bottom, and 2011 will be better. In three years, if you bought today, you will be much better off," Fagan said. "Landlords are desperately trying to hold their rent as best they can." Aside from a few exceptions where companies are expanding operations, there are few businesses moving into larger office space, unless they find a better lease rate in a superior location. The financial services industry, a driving force in the county's economy, continues to languish, keeping the office market in check.
Many tenants are remaining in place, but leasing less space after laying off staff.
"We lost a lot of financial jobs, and we're still losing them," said Ken McCarthy, managing director for research, Cushman & Wakefield's New York Metro Region. There were 1,500 fewer financial services jobs in July than in March.
"The state is forecasting a loss of 5,100 jobs in 2010, following 73,000 jobs lost in 2009. It's forecasting job growth -- 10,600 jobs -- in 2011," she said. "Over the summer we saw a modest increase in hiring on Wall Street. We have seen some growth in securities employment in the region. We have more workers in the securities sector (investment banking and securities dealing) now than we did in the first quarter of 2006 -- 18,000 versus 16,000." But Fairfield County is at its lowest employment level since 1994, McCarthy said, estimating that 396,600 people are employed in the county, and many businesses are wary about hiring.
"Businesses abhor uncertainty. We have an election coming up, and we don't know what's going to happen," McCarthy said.
Unemployment rates typically hit their highs six to 12 months after a recession, Fagan said.
Other overall vacancy rates in the region include: Westport/Southport, 14.4 percent; Fairfield, 3 percent; Wilton/Weston, 15.6 percent; Darien/New Canaan, 18.3 percent; Norwalk, 23 percent; Bridgeport, 9.5 percent; Stamford's central business district, 23.8 percent; Greenwich, 16.9 percent; Shelton/Stratford, 12.5 percent; Trumbull, 19.2 percent; and greater Danbury, 20.5 percent.
Direct average asking rates for Class A office space decreased from $35.68 per square foot in the third quarter of 2009 to $33.78 in the third quarter of 2010.
The largest decrease in asking rents occurred in Wilton/Weston, where they fell from $36.09 in the third quarter of 2009 to $28.06 in the third quarter of 2010, followed by the Stamford non-central business district, where figures fell from $38.52 in the third quarter of 2009 to $32.50 in the same quarter of 2010.
Norwalk's Class A rental rates bucked the trend, with the average rate rising from $31.56 in the third quarter of 2009 to $33.32 in the third quarter of 2010.
The Greenwich market commanded the highest rate in the county, at $58.28, down from $59.61 in the third quarter of last year, but up from $57.56 in the second quarter.