HARTFORD: Cushman and Wakefield’s Hartford Office released its Qtr 2 real Esate review for the Hartford Office Market. While the report points to a stronger economy with reducing unemployment, segments of the market continue to struggle. The Harford suburban office market is seeing negative absorption and weaker per square foot lease rates.
Overall vacancy for the region continues to be running in the negative as well. On the good news bad news front, the Central Business District is seeing positive growth, but according to Cushman it is coming at the expense of suburban properties, not new growth.
The Hartford region’s area economy saw employment fall from 4.7% to 4.4% year-over-year (y-o-y). This was driven by both a 1.0% y-o-y growth in non-farm employment and a 1.4% y-o-y decline in the labor force. Annual employment growth was strong in the traditionally office utilizing Professional and Business Services sector at 4.5%. Manufacturing and Education and Health Services also experienced solid growth.
Market trends that began toward the end of 2017 have continued into 2018. The Central Business District continues to exhibit strength, with a large new expansion from Virtus Investment Partners and continued positive absorption. This is offset by a struggling suburban market that has seen negative year-to-date (ytd) absorption across almost all submarkets.
Asking rents have declined slightly from their highs over the last two years. They are down over $0.50 per square foot (psf) y-o-y, but this is largely due to a flight to quality by tenants in the market. High quality, large blocks of space that command higher asking rents tend to be picked up quickly, while the lower quality, lower rent space sits on the market, bringing down asking rents.
After a period of declining vacancy over the last three years, what we had hoped was a blip is starting to become a trend of rising vacancy. So far vacancy is up 180 basis points (bps) year-over-year. Market wide vacancy finished the quarter at 17.2%, while market wide availability finished the quarter at 21.6%.
As has been the trend over the last 12 months, positive absorption in the CBD is a good sign for the city, but many of the new tenants are local suburban tenants that are leaving empty space in the surrounding towns, often even downsizing as they move to urban locations. This is part of a nationwide trend of urbanization as access to amenities and housing continue to be integral to talent acquisition. In order to see market wide improvement, new tenants will need to be attracted to the region, and with the current business climate in Connecticut that remains difficult.