Stamford Advocate

Office rent increases; vacancy rate does too

By: Richard Lee

The statistics may slightly vary, but the message is still the same -- Fairfield County's commercial real estate market continues to languish, though there are some reasons for optimism.

The Stamford offices of Jones Lang LaSalle and Cushman & Wakefield both said in their first quarter reports that Class A asking rents have increased, but Class A vacancy rates also rose in the quarter.

Jones Lang LaSalle reported that Class A rents rose from $35.82 per square foot in the fourth quarter of 2011 to $37.55 in the first quarter of 2012 -- signaling landlords' improving confidence in the economy, while Cushman & Wakefield reported that Class A rents grew from $35.74 per square foot in the first quarter of 2011 to the current level of $36.57.

Rents are rising despite an increase in Class A office vacancies in the county.

Despite the increase in rental charges, it is still a tenant's market, said John Hannigan, a principal in Choyce Peterson, a Stamford-based firm that represents tenants in their search for space.

"The vacancy rate still provides numerous options for tenants to relocate or renew," he said. "There are still generous concessions in the form of rental rates lower than asked, free rent (for a short period) and tenant improvement dollars provided by landlords."

The Class A vacancy in the county rate grew to 21.8 percent in the first quarter, rising from 21.5 percent in the previous quarter, according to Jones Lang LaSalle, while Cushman & Wakefield reported that the county's Class A vacancy rate went from 20.4 percent at the end of 2011 to 21 percent on the first quarter of 2012.

There has been a pick up in activity, however, early in 2012 coinciding with efforts to stimulate business  improvement, said Robert Ageloff, international director and head of Jones Lang LaSalle's Stamford office.

"Although labor market fundamentals remain weak, there are new government and private sector-run programs in place to encourage business expansion," he said. "The first quarter started off with a pickup in activity in Fairfield County, with tenants seemingly rejuvenated and interested in pursuing new space options."

In the long term, brokers and landlords agree that the key driver of lower vacancy rates is an improved employment rate, Hannigan said.

Tenants who do sign leases for new office space are looking for improved facilities, said Jim Fagan, senior managing director and market leader of Cushman & Wakefield's Fairfield and WestchesterCounty regions.

"Despite the lack of leasing activity and the increase in vacancy, however, asking rents, particularly in quality buildings, rose this quarter, as tenants seem willing to pay a premium for tenancy in these buildings," he said.

There were only two leases signed in the first quarter above 20,000 square feet, both in Shelton, Cushman & Wakefield reported, one CDW Government's 29,100-square-foot lease at Two Corporate Drive, and the other Clayton Holdings' 23,366-square-foot lease at 100 Beard Saw Mill Road, according to Cushman & Wakefield.

The other significant transaction was Aris Global's 12,898-square-foot least at 1266 E. Main St., in Stamford, Fagan said.

Despite the arrival of the two businesses in Shelton, the Shelton/Stratford submarket had the largest increase in overall vacancy, rising 4.8 percentage points from 8.8 percent at the first quarter of 2011 to the current 13.6 percent.

This was primarily due to the large blocks of space added to the market this quarter in Shelton -- 174,000 square feet  vacated by Pitney Bowes at 35 Waterview Drive, and a combined total of 165,609 square feet vacated by HealthNet at 100 Beard Saw Mill Road and 1 Far Mill Crossing.

The Stamford central business district's overall vacancy rate reached 27.4 percent in the fourth quarter, a decrease from  26.2 in the fourth quarter of 2011 and 23.7 percent in the first quarter of 2011. The increase from last quarter is attributable to the addition of UBS's 110,346 square feet of sublease space and Sorin Capital's 17,500 square feet of sublease space, both at 400 Atlantic Street.

The Greenwich Class-A overall vacancy rate has remained steady since first quarter of 2011, ending the quarter at 19.6 percent, in line with last quarter's 19.5 percent and last year's 19.2 percent, Fagan said.