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Whence Commercial Real Estate
Why ‘97 may be remembered as the Year of the Turnaround
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Business New Haven
7/14/97
By: BNH
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Richard S. Guralnick, CCIM, of the Business Group Inc. in Branford presented an expanded version of the following summary of trends in greater New Haven commercial real estate at the June 19 Connecticut Economy '97, the mid-year update of the Connecticut chapter of Certified Commercial Investment Members (CCIM), at the Trumbull Marriott. Information and statistics for his summary came from the commercial real estate firm of Cushman & Wakefield.
By Richard S. Guralnick
The Office Market
The New Haven County office market continues to show improvement, primarily due to activity in suburban markets. Vacancy rates began to decline, finally, during the second half of last year and continue a slow but steady decline to 19.5 percent - the first time it's been below 20 percent in years.
The emergence of biotech and service-related firms are leading the way, and are also the sectors most responsible for job growth in the county. Neurogen Corp., for instance, is in the middle of a $12 million expansion which will double its research space.
Also, the present or pending deregulation of the telecommunications and utility industries have prompted SNET and the United Illuminating Co., both headquartered in New Haven County, to restructure their organizations. Two of the largest sales - former SNET buildings at 300 George and 227 Church streets - are outward reflections of this trend.
n In New Haven's Central Business District (CBD), the overall vacancy rate of 24.1 percent is down just 0.2 percent YTD from last year - but the outlook is brighter than raw numbers suggest. The Omni Hotel at Yale, a four-star hotel and conference center, is scheduled to open this fall. Temple Medical Center and the New Haven Hotel have agreed to purchased the former United Illuminating headquarters on Temple Street downtown, a 138,000-square-foot project that will become the new Temple Medical headquarters.
n In the non-CBD and suburban markets continue their strong growth pattern of the past 24 months. During the first quarter, the area had a positive absorption rate of 115,000 square feet, and vacancy rates are down over the past year nearly four percent to 17 percent overall.
Leasing activity during the quarter was healthy, with most activity concentrated in small to medium-sized deals (under 5,000 square feet). Larger leases included Bayer Pharmaceutical's 35,000-foot sublease at 35 Executive Boulevard in Orange, Curagen's 12,326-foot lease at the Long Wharf Maritime Center (as well as its recommitment to 7,500 feet in Branford) and Ford Motor Credit's 13,000-square-foot lease at the signature 91 Building in Wallingford.
Clearly, New Haven - city and county - are capitalizing on the presence of Yale University, Yale-New Haven Hospital and the growth in the pharmaceutical and biotechnology industries. For most of this decade, the fledgling industries of biotech and pharmaceutical R&D have held out the promise of rapid expansion while adding significant levels of high-salaried positions to the market. It is now evident that the leasing and expansion in the biotech cluster has, in 1997, begun in earnest.
The Industrial Market
With five times the square footage of the office market, the industrial market, though changing rapidly in character, continues to be the engine that drives commercial real estate locally.
The high-technology and office/service center figures, while still representing only fraction of the total marketm, speak clearly about the emerging sectors of this important segment of the New Haven economy. Where this subsector of the larger industrial market represented barely ten percent of the total market at the beginning of the 1990s, they now account for 22 percent - a 120-percent jump in six-plus years.
The city of New Haven has an effective availability rate of zero. The question, “Where do we go from here?” must be addressed by all parties doing business in New Haven County. If we fail to devise workable relationships, the winners could well be other areas of the state - or, worse yet, beyond.
The Retail Market
While Connecticut continues to lag behind the national retail scene, there are bright signs, as reported by Marjorie Smith of George Smith & Sons. The most significant projects are the proposed million-square-foot regional mall at Long Wharf in New Haven, the soon-to-be-completed Brass City Mall in Waterbury and the continued strength of the Route 1 corridor in Milford, Orange and now, approaching West Haven. Although it may appear to be oversaturated, there's even more retail activity on the horizon, including a Shaw's/Loew's being built on a 23-acre parcel near the Orange-West Haven line, and a new 74,000-square-foot Super Stop & Shop across Route 1 from the Connecticut Post Mall (erected on ten acres purchased last year for $3.5 million).
Most new entrants, however, are more modest in size, including Domain (6,000 square feet on Route 1 in Milford), Outback Steakhouse (6,500 feet on Marsh Hill Road in Orange) and Gateway Computer (5,300 feet on Route 1 in Orange).
Occupancy rates along the Milford/Orange Route 1 corridor remain high. In general, national retailers occupy standalone properties, while local and regional tenants occupy the strip centers (anchored or otherwise). Rates for smaller or older space and satellite space in strip centers range from $12 to $18 triple-net.
Most Route 1 sites have been developed and not much opportunity remains. Notable availability includes the former Builders Square (80,000 square feet). However, several larger centers with the capability are expanding, including the Christmas Tree Shops and the Connecticut Post Mall (now 800,000 square feet, but expanding by 300,0000 feet to accommodate a yet-to-be-announced new anchor.
In general, this remains a strong sector of the market, and the outlook is for more of the same. Rates are on the rise, vacancy is waning, and very little good developable land remains. Thus we anticipate that the prime retail areas in this market will continue to expand toward West Haven in the east and toward western Milford in the west.
Market Overview
Overall, not only is there a sense that the New Haven markets have turned the corner, but statistical and anecdotal evidence from recent completed deals uphold this notion.
Clearly there are pressures form many segments of the market that need to be addressed if New Haven County is to remain competitive with neighboring counties and states.
During the remainder of the decade, we have a magnificent opportunity to establish New Haven as a desirable place to live and do business. Only our individual and collective initiatives can make this a reality.
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