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Back in the Black
New Haven's office market has reawakened. Now, how to keep it healthy?
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Business New Haven
3/6/2000
By: Carl Traub
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The New Haven office market is on solid footing after having come out of the worst economic downturn in the past 30 years.
The New Haven central business district (CBD) had one of the highest vacancy rates (in excess of 20 percent) in the nation during the late 1980s through the mid-1990s. Some buildings went through foreclosure, while many others were in some stage of workouts with lenders. New Haven was one of the last cities in the nation to absorb its office vacancies, and today the CBD and the New Haven County market are once again healthy.
A quick review of the numbers over the past two years will illustrate the progress the New Haven market is making in its overall office-space absorption. In 1998 New Haven County had an inventory of just over 8.5 million square feet, with 1.4 million square feet vacant (16.9 percent). The New Haven CBD had an inventory of just below three million square feet with an overall vacancy rate of 20.2 percent.
Leasing activity in the CBD was 127,000 square feet. Rental rates in class A office buildings was $22.40 on a gross basis (all operating expenses and real estate taxes included in the rent). The recovery of the greater New Haven regional economy lagged behind Fairfield and Hartford counties, but showed significant improvement from 1998 through 1999.
Due to gains in the service, communications and technology sectors, the county's employment base swelled to 257,000 jobs, while the local unemployment rate correspondingly dropped three percent. Leasing activity in 1999 was strong with nearly a half-million square feet of leasing activity. The vacancy rate in class A buildings dropped from 14.5 percent at the end of 1998 to 10.5 percent at the end of 1999. Today the county vacancy rate hovers around 16 percent, with the New Haven CBD about the same.
Last year also saw the construction of the new 90,000-square-foot FBI building in the CBD, the renovation of 55 Church Street (95,000 square feet) by New York-based Geometry Realty, renovation of the former SNET corporate headquarters at 227 Church Street (200,000 square feet) by ELK Investors of New York.
As a further demonstration of the progress of New Haven development, Winstanley Enterprises just purchased 300 George Street from Matthews Ventures. The Massachusetts developer has aggressive plans to renovate the building for biotechnical companies wanting closer proximity to the Yale Medical School and Yale-New Haven Hospital.
With the exception of 227 Church Street (scheduled for occupation by its first tenant in May), the CBD has virtually no class A office space to offer new companies. Class A rents are in the low to mid-$20 range.
On the other hand there is plenty of good class B-plus office space in downtown. Landlords are aggressive and offer a variety of tenant-improvement packages with rents in the $16-to-$20 range on a gross basis.
Rental rates in New Haven County are now in line with national rents, including markets such as the Atlanta CBD ($27.70 per square foot), Atlanta suburban ($22.75), Los Angeles CBD ($27.25), Los Angeles suburban ($25.98), Miami CBD ($29.15), Miami suburban ($23.50) and Hartford CBD ($24.29).
Markets such as Manhattan (midtown), where rents average $39.90 and Boston CBD ($47) represent the rates in major northern markets.
New Haven County represents a good region for corporate expansion due to its proximity to major markets (Boston and New York), a reasonable supply of housing and labor and the availability of some large blocks of vacant office space. Based on national and regional economic projections, New Haven can expect to see continued growth.
There are problems to be dealt with, however, especially in the New Haven CBD and the region. Parking is once again scarce, and as absorption continues the situation could become untenable. The only relief is in the Coliseum garage and the Temple Street garage.
It is an oddity that the New Haven financial community is now centered between Elm and Trumbull streets. This area today has no parking available for
new companies, and their workers must park at the other end of town and walk or shuttle to their offices in the financial sector. Plans for a much-needed mid-block garage have been placed on hold once again.
In order for downtown to continue to grow, the city administration and business community must agree that New Haven is no longer just a college town, but a burgeoning city where residential, business, retail and university components must all grow in balance. Parking is critical for all these uses and must be adequate to accommodate the growth.
On a regional basis, a quasi-business/governmental unit should be established to aggressively market New Haven County to companies based in other states and cities. Feedback from the marketing program as to the perceptions of companies outside of New Haven should be shared with business and government leaders in order to modify the marketing in the future.
This approach has proved effective for cities such as Memphis, Charlotte, Atlanta and several townships in New Jersey that have the same proximity to Manhattan as New Haven.
New Haven is in a great position to attract its share of the e-commerce companies that are dotting the Northeast. These companies like to position themselves near universities (such as Yale) in order to attract some of the most creative brainpower that fuels this industry. The “intellispace” companies seem to have what it takes to garner municipal development funds for their initial start-ups and ultimately become the shining lights of Wall Street.
A walk into the offices of one of these companies will reveal racks of telecommunications equipment that stand between the reception area and the work areas. These companies require buildings that are located within the telecommunications “grid” of a city. This grid has all of the latest and fastest communication and information lines available for e-commerce.
The buildings must be able to connect the various Internet, voice and video components with the grid (and, in many cases, the satellite dishes and antennas on the roof of the building). They also demand redundant electrical power to ensure their computer systems never go down. This is achieved by obtaining electrical service from more than one substation and by connecting to batteries that provide millisecond alternate power while a dedicated generator goes online to provide the service until the power company supply is restored.
E-commerce typically runs day and night, with shifts of personnel throughout a 24-hour day. The buildings must have state-of-the-art security to accommodate this working format.
Downtown New Haven has two buildings competing for this business, both former SNET buildings: 227 Church Street and 300 George Street. New office-building construction will require location within the communications grid as well as provide state-of-the-art conduit and wiring.
New Haven has stabilized its office-leasing market and is now poised for substantial growth. The progress it can make over the next five or ten years depends on the governmental and business bodies working together to understand and respond to the national trends.
The opportunities are unlimited. The New Haven CBD has the potential to become an important commerce center. It has the location, transportation and university presence to be marketed to national companies needing the talent and convenience to capital markets - at a fraction of the cost of locating in Boston or Manhattan.
Proactive leadership and planning by the city administration and business community will move New Haven toward that potential.
Carl Traub is president of Traub & Co., a commercial real estate service and brokerage company in New Haven. He is chairman of the Downtown Brokers Committee for a Better New Haven, past president of the Connecticut chapter of CCIM (Certified Commercial Investment Member) and past president of the Greater Hartford Board of Realtors.
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