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Proximity to train station a boon to office landlords

Offices close to train stations: Distance spells difference in rental rates
Published 9:27 pm, Wednesday, May 1, 2013

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  • 10 Middle Street, Park City Plaza, in Bridgeport, Conn., May 1st, 2013. Photo: Ned Gerard / Connecticut Post
    10 Middle Street, Park City Plaza, in Bridgeport, Conn., May 1st, 2013. Photo: Ned Gerard

 

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If you're standing in a commercial building near a Metro-North railroad line station in lower Fairfield County, you're most likely situated in the highest-priced property in the community.

Proximity to a rail stop can nearly double the rent for space in an office building, compared with only a mile away, particularly in Stamford and Greenwich, where office-occupancy levels often are in the 90 percent-plus range or higher. In many cases, occupancy levels are as low as 50 percent when train stations are farther than walking distance.

Companies want their employees to have the convenience of walking to and from a station, and many are willing to pay for it, according to James Ritman, managing director of Newmark Grubb Knight Frank's Greenwich office.

In Greenwich, that could mean paying more than $100 per square foot for Class A office space at 55 Railroad Ave., near the train station, compared with the low-$40s to mid-$60s for a building that would require workers to take a cab or shuttle to their office.

Ritman cited 1 Lafayette Place, which commands $75 to $80 per square foot and 1 E. Putnam Ave., with rents ranging from the mid-$40s to the mid-$60s. The properties are nearly a mile from the train station, just beyond the north end of the Greenwich Avenue retail mecca.

"You have groups (businesses) wanting to be close to the train," Ritman said. "You have multiple bidders. You haven't seen this since 2007. You have more groups looking from New York."

Ritman said he is familiar with two New York City businesses that are finalizing deals to move some operations near the Greenwich train station, where they would each occupy 30,000 square feet of office space.

`No vacancy'

"You can do better rent in Manhattan. They want to be here because of their income taxes for their employees or management lives here," Ritman said, adding that despite the high rental rates, downtown Greenwich has a dearth of office space. "Take away the 120,000 square feet of available space at 600 Steamboat Road, and there's no vacancy left."

Space at Class A office buildings near the Stamford Transportation Center, several of which are owned by RFR Realty and Malkin Properties, is difficult to find. The rental rates are among the highest in the city, ranging from the high $30s per square foot to the mid-$60s.

"RFR and Malkin -- their buildings are 95 percent full. Metro Center (a Malkin building) is 100 percent full," said Laure Aubuchon, Stamford's director of economic development. The last six corporate relocations we've seen have all been by the train station.

"It's the closeness to New York and the proximity to its talent. People will pay a premium," she said.

Most of the recent locations to Class A office buildings near the Stamford train station have been companies from New York City and Greenwich, said Jeff Newman, executive vice president of Malkin Properties, which owns Metro Center and First Stamford Plaza and plans to build Metro Tower, a 385,000-square-foot office building just a short walk to the station.

"Companies really recognize the value of an easy employee commute for retention and recruitment, and their clients as well. That's what we hear from the tenants who sign leases with us. Location can't be replicated," said Newman, noting that Metro Center is fully leased despite asking rents between $56 and $64 a square foot.

Malkin's massive First Stamford Place, an 810,000-square-foot, three-building complex, costs $50 a foot. Located a block from the train station, the complex is 90 percent leased.

Occupancy rates are at similar levels at Four Stamford Plaza, 300 Atlantic St., Canterbury Green and 177 Broad, RFR-owned buildings that are all within walking distance of the train station. Asking rates start at $38 per square foot at Canterbury Green and 177 Broad and at $54 at 300 Atlantic and Four Stamford Plaza.

Despite providing shuttle services to and from the train station and lower rental rates, owners of office buildings more than an easy walk away are challenged to fill space, said Jeff Williams, executive managing director at the Stamford office of Colliers International.

`Flock to downtown'

"You can get deals at the end of Summer Street in the mid-$20s," he said, estimating that despite the lower rates, most office buildings farther from the train station have vacancy levels of 20 percent or more. "It's supply and demand. Larger corporations are going to flock to downtown."

The arrival of Charter Communications and Navigators Group at 400 Atlantic St., less than two blocks from the Stamford Transportation Center, has pushed the occupancy level of the building to 90 percent, said Scott Landis, principal in the Landis Group, which is offering space at $52 per square foot.

"There's always a flight to quality -- even in a downturn," said Landis, whose company has owned the 509,696-square-foot building for 13 years.

Building and Land Technology's 614,000-square-foot Financial Center at 695 E. Main St., a vacant office complex in search of an anchor tenant, could play a role in asking prices for buildings near the train station.

The Stamford-based developer, who did not respond to requests for an interview, owns 1 Harbor Point and 2 Harbor Point, two office buildings constructed to take advantage of easy access to the Stamford Transportion Center. A 260,000-square-foot building, 1 Harbor Point has 168,000 square feet available, including 4,500 square feet of retail, and 2 Harbor Point, a 140,000-square-foot building, has 42,000 square feet available.

Like Malkin, the company is putting its faith in the Transportation Center by advancing plans to build a 490,000-square-foot, 15-story office building called Gateway Harbor Point.

Colliers' Williams said asking rates for new office space in Harbor Point are generally higher than those sought by RFR and Malkin.

Search for tenants

Farther from the train station, Building and Land Technology's 423,000-square-foot building at 333 Ludlow St. is fully occupied.

But BLT is seeking tenants. Its office buildings at 260 Long Ridge Road and 292 Long Ridge Road are vacant, while 120 Long Ridge Road has ample sublease space available.

Office buildings in Stamford's Central Business District have an occupancy rate of 85 percent compared with 77 percent for the overall assemblage of Class A Stamford office buildings, according to CBRE Group, the world's largest commercial real estate services firm.

The district submarket had an average rental rate of $42.54 per square foot in the first quarter of 2013, CBRE reported, higher than the $32.73 per-square-foot average outside the district.

While the disparity between office lease rates near the Greenwich and Stamford train stations is documented, the numbers grow fuzzier the farther east and north along Metro-North lines.

Tenants pay in the low- to mid-$30s per square foot for space at the Merritt 7 complex, a short walk from the stop on the Danbury line.

"A lot of tenants use it. I include it in all my showings," said JoAnn McGrath, director of leasing the 1.4-million-square-foot complex, managed by Marcus Partners.

The property is 90 percent occupied, compared with an office occupancy rate in Norwalk of 82.3 percent, according to Stamford-based Choyce Peterson.

"There's no doubt that offices near railroad access ought to be more expensive because workers like the convenience," said Tad Diesel, Norwalk's director of marketing and business development.

Downtown Fairfield does not have the same number of office buildings near its train station as Greenwich or Stamford, but an R.D. Scinto building at 140 Sherman St. is nearly full at $18 per square foot, said Mark Barnhart, Fairfield's director of Community and Economic Development.

"You can't do better than that for downtown," he said.

Bridgeport, Danbury stations

Farther up the main Metro-North line, demand is growing for office space near the Bridgeport train station, but at a fraction of the cost. Rents at office buildings like 1000 Lafayette St., 10 Middle St., and 855 Main St., are in the $18- to $20-per-square-foot range, said Bruce Wettenstein, partner in the Westport brokerage firm of Vidal Wettenstein.

"We just did the Zeisler & Zeisler deal for 10 Middle St.," Wettenstein said, adding the Bridgeport law firm is taking 12,000 square feet on the 15th floor. "One of the features that they liked is that it is very close to Metro-North. The downtown office market is picking up. It will be a matter of time before we see an increase in absorption rates."

For Ernest Trefz, whose company, Trefz Corp., owns 10 Middle St., a site near the station is essential to attract tenants. The site is nearly 85 percent occupied, he said.

While access to a train station is a boon to office building owners in the lower county, such is not the case in Danbury, according to Joe Wrinn, vice president of Goodfellow-Ashmore, a Danbury-based real estate brokerage firm.

"There are very few offices there. Most are on the west side," he said.

An ordinance limits building heights near Danbury's downtown train station. Office buildings are allowed, but there hasn't been a demand, said Dennis Elpern, the city's planning director.

But Mark Nolan's 60,000-square-foot office building at 30 Main St. is 70 percent filled. Asking $15 to $20 per square foot, he said it's within walking distance -- only a half-mile from the station.

"The train station hasn't been a draw in Danbury," he said. "I think a lot of employers are missing an opportunity."