Fairfield County Report

1996 marked a major stride in the long road to recovery in the Fairfield County office market. And a long road it has been. Stung by overbuilding and corporate restructuring, the vacancy rate in the late 1980’s exceeded 30%. The recession in 1990-91, with its concentrated impact on the northeast and especially white-collar workers, extended the downturn in the market. Some questioned whether Fairfield County would ever recover. In January of 1993, the availability rate was still stubbornly high at 27.4%. Since then, the major properties in Fairfield County absorbed approximately 3 million square feet and the availability rate has declined to 13.4%, a drop of 14 points.

The recovered marketplace is a very different one from the distant market of the early 1980’s. Firstly, it is a more mature market with a better defined downtown core. Furthermore, it’s a more diversified market with less dependence on the corporate behemoths for its health. While still a center for corporate headquarters, financial services companies and information technology companies have become prevalent. Lastly, speculative office construction has been non-existent.

The real story in 1996 was downtown Stamford. When segregated from the remainder of Stamford, the Central Business District, which contains roughly two thirds of Stamford’s major properties, absorbed approximately 523,000 square feet. This accounts for about three quarters of the total absorption in the county. The downtown availability rate in the major properties is now 8.8%. Only three downtown buildings have 50,000 square feet or more of contiguous available space. Curiously, the non-downtown areas of Stamford fared worse than a year earlier. Most observers readily agree that a successful downtown core is essential to the overall health of a market. Downtown Stamford has changed, responding to the office tenants of the 1990’s. The city has witnessed the construction of numerous units of attractive housing downtown. New restaurants and theaters have opened bringing activity in the Central Business District beyond the workday. The University of Connecticut is creating a new downtown campus geared to the needs of the areas office workers. Expansion of the railroad station coupled with an effort to better connect it with the downtown area has been undertaken. The city’s stated objective is to become less automobile oriented and more conducive to pedestrian activities.

Instead of icons to the failures of the last development cycle, the vacant downtown parcels have become the subject of much speculation as to which major company might be the anchor tenant in a new office tower. Two new projects are being actively discussed that would add over 800,000 square feet of new office space.

Virtually no new construction commenced during 1996 in Fairfield County. One major property added to the space inventory was the former Dun & Bradstreet headquarters building in Wilton containing 131,000 square feet. D&B earlier had split into three new companies with separate headquarters. Besides downtown Stamford, various other projects are being considered for a 1997 construction start. Merritt 7 Corporate Park is planning two buildings that will total 430,000 square feet. The first building of 175,000 square feet is reportedly 51% preleased with Hewitt Associates planning to take 90,000 square feet. In Shelton, R.D. Scinto plans to complete a 93,000 square foot building.

Rents still remain shy of the pro-forma rents in the early 1980’s. Planned downtown projects will require rents in the low $30’s per square foot. We doubt entrepreneurial development will start without considerable preleasing. Not to be overlooked is the vast amount of available first class space in neighboring Westchester County. Attractive rents and higher contributions to tenant improvements will weigh heavily on tenants to seriously consider Westchester. Within Fairfield County, the Danbury area also affords an attractive alternative to lower Fairfield County. More affordable housing, uncongested area highways and lower rents will encourage tenants to pursue space there. Interestingly, General Electric Capital Corporation, one of the principal engines of growth in Fairfield County, has identified Danbury as well as Stamford as one of its core locations for future operations.

Peoples Bank leased 69,000 square feet at 1000 Lafayette Boulevard in Bridgeport.

Towers Perrin has announced a planned 57,000 square foot relocation to One Stamford Plaza from another downtown Stamford building.

Cowles Business Media leased 56,000 square feet at Riverbend Center in Stamford.

AC Nielson, one of the new companies formed by the demerger of Dun & Bradstreet, leased 55,000 square feet at 177 Broad Street in Stamford in a move from Wilton.

Chartwell Reinsurance took 53,000 square feet at 4 Stamford Plaza in a move from another downtown location in Stamford.

Philip Morris Capital Corporation leased 53,000 square feet at First Stamford Place, in a relocation from Westchester.

Weseley Software has leased 50,000 square feet at First Shelton Place in Shelton.

Information Resources took 50,000 square feet at Merrittview in a move from Darien.

The year, unfortunately, was not without cutbacks or announced relocations. Nine West Corp. has announced that it will relocate to more than 300,000 square feet in White Plains after being unable to find a suitable Stamford area alternative. IBM Credit Corp. relocated 650 workers to Westchester from Harbor Plaza in Stamford. Pittston Corporation moved to the Southeast from Stamford and Pitney Bowes Credit Corp. put approximately 100,000 square feet on the sublease market at Merritt 7 Corporate Park in Norwalk in a corporate consolidation.

Sales activity during 1996 increased. The major sale was the 825,000 square foot Landmark Square complex in downtown Stamford. The complex sold for $77 million or $93.33 per square foot to Reckson Associates Realty Corp., a real estate investment trust. The buyer plans to undertake a full renovation of this "tired" office complex. Another major sale was the former Richardson Vicks property in Shelton. The complex, which contains 327,195 square feet of office and research & development space, was purchased by the fast growing HMO, Physicians Health Services, Inc., for over $18.5 million. At the premium end of the spectrum, 475 Steamboat Road, a 92,000 square foot building in Greenwich, sold for $18.2 million or $197/square foot to a user/investor, W.R. Berkley Co.

u	The Fairfield County office market flourished in 1996, with the availability rate for the major properties sinking to 13.4% at year end. Absorption increased to 701,551 square feet.

u	Downtown Stamford led the marketplace with over 500,000 square feet absorbed and a sharp drop in its availability rate to 8.8%.

u	Greenwich remains the tightest submarket, with the availability rate in the major properties at a minuscule 3.6%.

u	Asking rents increased overall, with downtown Stamford showing the greatest increase.

u	Fueling demand for office space were the 10,100 new jobs added in the Services, Finance, Real Estate and Insurance employment sectors since 1994.

u	The market will continue to tighten in 1997 as the effects of the economic expansion stimulate demand.

u	New construction projects will be announced in downtown Stamford but will come on stream no earlier than late 1998, and only then with substantial preleasing.

u	Outside of downtown Stamford, the argument for new office construction is less persuasive.

u	The large supply of quality office space in Westchester will attract some tenants considering Fairfield. This will temper potential rent increases and absorption in Fairfield County.

u	The health of Fairfield County’s office market remains at a somewhat delicate stage and could be tested in a economic downturn in 1997.

u	Continued infrastructure improvements in the County will be needed for Fairfield County to sustain its desirability over the next decade.

The Fairfield County Connecticut major properties survey is composed of the properties that contain 100,000 square feet or more of rentable area. These properties represent 58.4% of the total market inventory and is that market component most favored by institutional investors and major corporate tenants.