The New Haven office market has hit the doldrums.
During the first three months of 2014, “A dearth of transactions produced virtually no statistical change from the end of 2013,” according to the Colliers International’s New Haven Quarterly Market Report, which tracks occupancy levels in 60 Elm City office buildings. Overall vacancy in the 5.2 million square feet of office space declined by 1,203 square feet, staying at 15.3 percent of inventory.
Cushman & Wakefield’s Q1 2014 New Haven Marketbeat Office Snapshot reports a three point year-over-year rise in New Haven County vacancies, from 15.6 during the first quarter of 2013 to 18.6 percent during the first quarter of 2014, with lackluster leasing activity and “no lease transactions of significance in either the New Haven Periphery or Eastern New Haven County.”
Colliers notes the sale of the 17,000 square foot Palladium Building at 135 Orange Street as “probably the most significant event” of the quarter. The price was $1,950,000, or around $115 per square foot. This suggests “Buyers are willing to pay a premium” for prime downtown properties, writes Colliers broker John Keogh, who adds that the new owner, Juan Salas-Romer of NHR Properties, “says he is keeping the building in office use.”
Alexion Pharmaceuticals leased 19,217 square feet at 7 McKee Place in Cheshire, Cushman & Wakefield reports, “representing the majority of the leasing activity in northern New Haven County, which had the most leasing of all of the New Haven submarkets” for the quarter.
The development of 360 State Street, a mixed-use high-rise building that opened in 2010, has triggered steadily rising values in nearby properties, and the area is “poised for more redevelopment,” according to the Colliers market report.
Despite construction underway for the heavily subsidized 100 College Street project, with its 400,000-square-foot headquarters for Alexion, Keogh says the overall trend is creation of living space rather than office space. Nearly 1,000 high-end apartments have come online in downtown New Haven over the last 15 years, and at least 200 more are under construction, including 160 luxury digs at CenterPlan Cos.’ new building at College, Crown and George Streets, which also will have 20,000 square feet of retail space.
During the first quarter of 2014, the overall citywide vacancy rate for Class A space was 23.8 percent, according to the Colliers report. That inventory, Colliers explains, consists mainly of general office space unlikely to attract government incentives and “not suitable for research-oriented companies like Alexion that might be attracted to the cluster of medical enterprises around Yale-New Haven Hospital.”
The Cushman & Wakefield report expects medical demand to “remain healthy, with requirements from multiple organizations in the area, most of which are set to be fulfilled over the course of the next year or two.” Office space, however, “will be slower to pick up “ and rental rates “will continue to flag.”