By Mitchell Young

matrix danburySTAMFORD, NEW HAVEN: Colliers International [NASDAQ:CIGI] released their annual and quarterly office leasing activity reports for Fairfield County.

The County’s leasing activity for 2017 reached the second highest total leasing on record at 4.1 million square feet, just 8.4% less than the highest total registered by the firm in 2015. Space availability dropped for the fourth consecutive quarter, settling at 23.3%.

“While steady improvement has been made, the availability rate this year is still 100 basis points higher than in 2016 as the market struggled to absorb the space given back by Starwood and others early in the year,” said Sean Cullen, Director of Research for Colliers’ Stamford office. “Asking lease rates remained steady during 2017, rising just 1.1% to $36.09 per square foot year-over-year.”

Cullen added that the fate of the 1.2 million-square-foot Matrix Corporate Center in Danbury, [see A For Sale Sign and A Foreclosure For Two Fairfield County Signature Buildings] now being marketed for sale with re-development potential, will have a significant impact on the overall market in 2018.

While the availability rate in the Eastern Fairfield County submarket declined by 20 basis points from the previous quarter to 17.7 %, according to Colliers, “falling asking lease rates and limited leasing activity reflected a lack of momentum throughout 2017.”

The Colliers report added “cities like Bridgeport have been revitalizing their urban centers, but the office market has yet to reap the benefits.”

Fourth-quarter availability in the Central submarket fell 180 basis points to 22%, due primarily to the 82,851-square-foot sublease inked by ASML the Veldhoven, Netherlands based industrial company at 60 Danbury Road in Wilton. The lease helped push total activity to 205,429 square feet, beating the trailing five-year quarterly average by 9.3%. Asking lease rates however, have not responded accordingly, dropping 7.2% year-over-year to $30.21 per square foot.

Collier’s says, the Greenwich submarket had a strong recovery after a bumpy start to the year. The quarterly total of 326,999 square feet of leasing was the highest on record, fueled by Interactive Broker’s 162,296-square-foot renewal and expansion at 1-3 Pickwick Plaza. As a result, the availability rate fell 180 basis points to 19% and asking lease rates surged 7.2%, ending the year at $70.02 per square foot.

The fundamentals in the Stamford Non-CBD district have remained stable year-over-year, and the Stamford CBD saw healthy leasing activity, which helped push the annual total to the second highest on record. Availability rose by 150 basis points from the previous quarter, primarily due to the marketing of Charter Communications’ former headquarters at 400 Atlantic Street.

Charter’s completion of their new 15 floor, 500,000-square-foot space in Stamford is expected to open in 2019 and accommodate an additional 1,000 employees and will have a positive impact on the availability rate in the future.

The Northern submarket continued to improve in 2017 “despite a lack of blockbuster deals, defying what Colliers calls the “much touted urbanization trend.” The availability rate dipped for a third consecutive quarter, falling to a County-wide low of 16.6%.

 

AlexionHQWinter2016New Haven Class A Market Will Face Challenges in 2018

The biggest factor in the New Haven real estate market was the decision by Alexion Pharmaceuticals [NYSE: Alxn] to move its headquarters to Boston

Alexion has placed 280,000 square feet of office space on the market for sublease with a term ending in 2030. For the time being the company plans to keep its research personnel in approximately 220,000 square feet of lab space in the building.

Alexon’s ability to save the estimated $250 million dollars per year that its “reorganization” expects may well be challenged by the cost to move however, as conditions in Boston get more expensive. The Boston real estate market continues to tighten, likely presenting Alexion with square footage more than double what the company pays in New Haven.

Anecdotal reports from the Boston market is that hiring in the “tech space” has grown more difficult as competition for tech workers and the costs of living for employees in the city continue to escalate..

According to SmartAssets.com a financial services data website an Alexion employee will have to be paid $128,000 annually to live comfortably in Beantown. The median income in greater New Haven is approximately $68,000.

Considering the 30% Class A vacancy rate and the premium costs associated with the new construction of Alexion’s headquarters at 100 College Street the ability for the company to recoup its real estate costs through the sublease market may be in doubt.

The startup and small business nature of New Haven’s biotech and general business community illustrates the problems in filling the Alexion space at its current costs. The region’s premier Class A office building 555 Long Wharf has 68,685 square feet available for sublease from Medtronic [NYSE:MDT, formerly Covidien] at an advertised rate of under $20 per square foot.

Biohaven [NYSE:BHVN] recently raised more than $168 million in a public offering and chose to purchase the former Liberty Bank location a Class B building on Church Street for its headquarters in a purchase last August 2017. The opening in February [2018] of the 107,000-square foot District Tech space will also be an additional competitor for the sublease space.[ see New Haven's New Tech District is Right Around The Corner]

The Alexion relocation announcement has had a major impact on the city’s vacancy numbers, office vacancy citywide jumped from 14.1 to 19.3%.

Class A vacancy increased from 19.1% to 30.3%. Vacancy in the New Haven Central Business District rose from 8 to 16.1 %.

Most of the increase in the numbers is a result of the Alexion move, but the Class A vacancy rates also increased as Medtronic increased its offering of sublease space at 555 Long Wharf Drive from 37,265 to 68,865 square feet [see above]. The new sublease space resulted in a jump in non-CBD vacancy [a category that was unaffected by Alexion] from 21.7 to 22.9%.

In 2014 Winstanley sold a partnership interest in 100 College Street [Alexion building] and the nearby 300 George Street to Wexford Science and Technology, a division of BioMed Realty Trust of San Diego. The deal valued the two properties, which have a total just more than 1 million square feet, at $308 million.

Winstanley retained an equity interest and responsibility for management of the properties. Wexford has since been bought by Ventas Inc., based in Chicago.