— MAJOR PROPERTIES OFFICE MARKET SURVEY AND COMMENTARY –

(January 1998)

Perhaps the single most defining characteristic of today’s office market is change. Interestingly though, the much ballyhooed trends that resonated in the early 1990’s: technologically obsolescent buildings, hoteling, or telecommuting have not been the driving force. Instead, unparalleled nationwide merger and divestiture activity has been the principal catalyst. Corporate agglomeration of disparate businesses so prevalent a decade ago has been replaced with the mantra of divesting non-core operations and merging with similar businesses.

As a major corporate center, the Fairfield County office market has been visibly affected by these restructurings. Witness some major examples: Dun & Bradstreet, one of the nation’s oldest corporations relocated to Fairfield in 1993 with much fanfare. The State provided an array of incentives for this long-time fixture of the corporate world, anticipating a long-term presence. Yet, by 1996, Dun & Bradstreet divided into three new public companies with the namesake relocating its headquarters to New Jersey. More recently, two of these newly formed entities announced a further division into more finely honed businesses. Swiss Bank, one of the preeminent banking institutions in the world, which just completed a 614,000 square foot tower in downtown Stamford for its U.S. headquarters, plans to merge with Union Bank of Switzerland and anticipates significant job cuts. Champion International, another Fairfield County stalwart, announced a major restructuring and employee cutback.

Nonetheless, the Fairfield County office market remained active and dynamic in 1997 and continued to tighten. The County’s position as the pivotal economic force in the State has strengthened since 1995. Indeed, the Fairfield County area labor force accounts for approximately one third of all non-agricultural employment in the State. The availability rate in the major properties continued its six year slide and reached a milestone at 10.0%. Absorption, at 759,676 square feet, approximates the five year average for 1993-1997. The Shelton and Norwalk submarkets led in absorption with Stamford falling off from 1996 because of new availabilities. Rents truly spiked during the year. Asking rents reached the highest levels in downtown Stamford, with the premier existing buildings now seeking well over $30.00 per square foot. Each of the County’s submarkets performed well.

Preventing an even more pronounced tightening were the effects of relocations from the market. For instance, Nine West Corp., which relocated to White Plains, placed its 100,000 square foot former Stamford headquarters on the sublet market. Also, GTE, a bellwether company in the market and one of the largest corporations headquartered in Connecticut, confirmed that its corporate operations would relocate to Dallas and placed its distinctive 484,000 square foot downtown Stamford building on the market. Offsetting this loss was Zurich Reinsurance, which had been considering moving its headquarters to one of the proposed new downtown towers but quickly redirected its efforts when the GTE building became available. It now plans to relocate from Manhattan, making it Fairfield County’s largest incoming relocation announcement of the year.

Displaying a level of market discipline foreign to the Fairfield County office market of the 1980’s, none of the proposed office towers in downtown Stamford will proceed without significant pre-leasing. The GTE building’s availability essentially pushed back the start date of any of the new projects well into 1998. One of the proposed buildings, to be called Connecticut Place, is rumored to be very close to a major lease commitment. The 450,000 square foot project’s proximity to the Stamford train station and I-95 is a key advantage. Elsewhere in the market, only one major building was added in 1997, a 123,000 square foot building at Enterprise Corporate Park in Shelton, which is entirely leased. The developer of that building, Robert Scinto, has another 110,000 square feet under construction there. Also in Shelton, the Davis Companies, in conjunction with David Mack, plan to commence construction of a 150,000 square foot building. Orchard Park, in Danbury, is constructing a 132,500 square foot building for HFS Marketing Services that will add some 400 jobs to its existing operations there.

In 1997 there were ten leases of over 50,000 square feet concluded. The largest, NatWest Securities, was a planned relocation from New York.

NatWest Securities - 174,000 square feet at Harbor Plaza in Stamford; Time Warner Cable - 145,000 relocation to Harbor Plaza in a relocation from from First Stamford Place; HFS Marketing Services - 132,500 square feet expansion at Orchard Park in Danbury; Hewitt Associates - 111,000 square feet sublease at Merritt 7 Corporate Park in an expansion emanating from its regional headquarters in Norwalk; Long Term Capital - 83,000 square feet at One East Weaver Street in Greenwich from 600 Steamboat Road in the same town. TIG Insurance - 61,000 square feet at 300 First Stamford Place in an expansion; Citicorp - 50,000 square feet at 100 First Stamford Place in Stamford; Alcone Marketing Group - 50,000 square feet at Darien Green; Market Data Retrieval - 50,000 square feet at One Forest Parkway in Shelton; Transwitch - 50,000 square feet at Three Enterprise Drive in Shelton.

The sales market was very strong in 1997. Institutional buyers bid up the prices of the major offerings. The largest sale was for the Greenwich Office Park, a 435,000 square foot complex that was purchased by a major public pension fund. Buyers of fully leased major properties were primarily real estate investment trusts or public pension funds.

MAJOR PROPERTIES SALES - 1997

SUMMARY

OUTLOOK - 1998

We expect 1998 will witness the start of at least one new downtown office tower, marking the end of the long development drought. Look for a continuance of merger and divestiture activity to impact the market. Any residual sense of locational permanence is disappearing and both landlords and tenants must be mindful of this in their lease negotiations.

In light of Stamford’s critical importance to Connecticut’s economic growth, state officials will need to seriously consider major improvements to I-95. The slow-motion, modest improvement program underway is hardly the answer. Should the State not effectively respond, the clogged I-95 will become a metaphor to a stalled expansion. Furthermore, Stamford itself needs to consider ways to improve access to downtown from the Merritt Parkway. While the recent additions to the multi-family housing inventory are welcome and long overdue, Stamford needs to promote the City’s south end as a logical area for additional residential redevelopment.

The Shelton and Danbury submarkets will continue to grow, as tenants search for less costly alternatives to the southwestern part of the County.

Lastly, we have a degree of concern about some of the area REITs which appear to have portfolios with an over-concentration of properties in Fairfield County and other similar sized markets. Together with somewhat schizophrenic investment criteria, these could be early warning signs.

MAJOR PROPERTIES SURVEY - DEFINITION

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 60.6% of the total market inventory and is that market component most favored by institutional investors and major corporate tenants.

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