The state of the region’s small-business real-estate market
The search for rentable space in downtown New Haven may become a bit easier in the near future when two major projects fulfill the need for small businesses looking to establish or expand operations here.
Two projects that have been proposed or are just getting under construction stand to deliver upwards of 100,000 square feet of new retail space and 200,000 square feet of new office space, in addition to the build-out planned within the footprint of Route 34 slated to host several new buildings.
A project to develop the long-vacant former New Haven Veterans Memorial Coliseum site on George Street took a step closer to startup when the Board of Aldermen unanimously approved a developer agreement last December. Montreal-based Live Work Learn Play (LWLP) proposed a $395 million development featuring residential units, an office tower, a hotel, shops, restaurants and public spaces to fill the 4.65-acre site. Usage will comprise 200,000 square feet of office space, 30,000 to 77,000 square feet of retail space, 1,000 residential units and 160 hotel rooms.
Another project moving forward is development of a parcel of land located at the corner of George and College streets, which will add significant space for downtown retail.
Developer Robert Landino, of CenterPlan College Square, LLC of Middletown, won approval last June from the city’s Board of Zoning Appeals to build a $65 million six-story mixed use building housing 20,000 square feet of retail space and 160 apartments, with underground and street-level parking. The project is slated for completion in August 2015 (see March 2014 BNH).
“We have nearly full occupancy in the Broadway district and on mid- and upper Chapel Street,” says Helen Rosenberg, an economic development officer for the city of New Haven. “The same goes for the Ninth Square area, which is almost fully occupied.”
Rosenberg says the downtown areas most suitable for retail small businesses and street-level office space are located on Chapel Street between Church and State streets. There are a few vacancies on Church Street between George and Crown streets and on Temple Street between Chapel and Crown streets.
Jeff Dow of Dow Realty Co. agrees with Rosenberg and notes that defining what a small business needs may depend on how many employees a company has or how much space it requires to operate.
“The space requirement can vary greatly based on the number of employees,” says Dow. “You can have a two- or four-person company occupy 200,000 square feet or they can occupy 1,000 square feet. In greater New Haven, I don’t think there have been a lot of new businesses. I think there may be more space on the market than there was a year ago. In the suburbs, it’s about the same even for industrial and warehouse space.”
According to a CoStar report furnished by Dow, industrial vacancies in greater New Haven are hovering at nine percent, while the office vacancy rate is slightly below that mark. Retail space vacancies in the area are slightly above five percent in what most real-estate professionals agree is statistical full occupancy.
John Wareck, managing broker/owner of Real Living Wareck D’Ostillio Real Estate, sees New Haven as a vibrant city that is attracting national as well as local businesses that want to locate downtown where there are some spaces for lease.
“Of course there is interest in moving to New Haven,” says Wareck, who also chairs the Commercial Investment Division (CID) of the New Haven Board of Realtors. “Even the national franchises that are coming in, like Pinkberry Yogurt, will have both full-time and part-time employees comprising a small business here on Chapel Street in the former Savitt Jewelers store” at 1064 Chapel Street.
Wareck notes the availability of the former Wells Fargo Bank branch at 205 Church Street that offers 23,000 square feet that can be subdivided.
“We certainly could accommodate small businesses that need 5,000 or 10,000 square feet there,” adds Wareck. “The low vacancy rate is a good sign that New Haven is getting stronger and getting better. However, we’re also losing commercial square footage that’s coming off the market to developers who are putting in residential units. We’re seeing it in a big way at the Wells Fargo Bank building [the former Union Trust building] on the corner of Elm and Church streets, where the bank is the sole occupant of the first floor and the upper floors that were office space are being converted to residential.”
Wareck notes the same thing happened several years ago when the upper floors of the building that houses Citibank on the corner of Church and Chapel streets were converted to residential use. He says many of the floors formerly dedicated to office space in the 900 Chapel Street building have been converted to residential units as well.
“Downtown New Haven is in somewhat of a unique position where there is plenty of potential land development,” says Wareck. “There is the whole Route 34 connector area, where Winstanley is putting up the first building, but they have another eight acres there that could be developed. If there were demands for it, the administration could figure out how to accommodate small business growth there.”
“In the suburban areas outside New Haven, given the recession that’s happened, there are a lot of people who were put out of business or lost their jobs and have started small businesses,” says Rich Guralnick, senior broker of the business development group at H. Pearce Real Estate. “They run the gamut from retail to small service businesses. Over the past two years, I’ve seen an increase in the availability of small retail plazas and flex industrial space in places ranging from Milford to Cheshire to Madison — basically in New Haven County.”
“There’s been a lot of infill by smaller businesses run by people who need a second job where the wife or husband has lost their job,” adds Guralnick. “A lot of these spaces, whether it’s on Route 1 or Route 5, have filled up over the last 24 months, frankly. In most retail markets within New Haven County, namely along Route 1, Route 5 and along State Street in North Haven, have basically filled up. I literally have no more product.”
Guralnick sees the business climate improving for small businesses and the vacancy rate shrinking from where it stood two years ago.
“It’s doing well but at a somewhat lower level within a tenant market, where the tenant has the power versus the landlord,” says Guralnick. “The landlord might have lost a larger tenant using 12,000 square feet and now he’s willing to accommodate three 4,000-square-foot tenants in that same space. All of the service and retail businesses, like a day-care center or a beauty salon, have filled in spaces of 1,000 to 5,000 square feet in the last 24 months.”
Guralnick says that business owners have become more adaptable when looking for space that fits their needs.
“On the service side for flex industrial space, which is swing space that can be used for light industrial or office space, I’ve found that segment of the market has done very well,” says Guralnick. “It’s capturing smaller office tenants that don’t want to pay the big bucks of a Church Street space or Class A suburban office buildings. I’ve seen a lot of doctors, accountants and insurance companies opting not to go to the larger multi-tenant office buildings but instead go to a flex space in suburbia, where there’s no charge for parking. New Haven is a killer for parking, where it costs $150 to $200 per car per month — which can add $5 a square foot to the rent.”
“There’s no doubt that New Haven is moving in the right direction,” says Wareck. “The leasing market is growing stronger and we’re seeing more start-ups in small businesses locate in the city and operate here.”