Fairfield County Market Report

The Fairfield County office market in 1998 can best be described as an enigma. The broad trends were very favorable. The area’s economy continued to expand. In fact, by 1998 area employment recovered almost all the jobs lost since its peak in 1988. It was the sixth consecutive year of job growth and 41.9% of the jobs are now in services, finance, insurance and real estate compared to a third in 1988. Reflecting the overall optimism in the economy, leasing activity was strong. The sales market reached new heights in both prices and the number of properties sold. New development proceeded but at a prudent level. All these factors suggested a predictable positive direction for the market.

Notwithstanding these positive trends, the year’s most dramatic news events were negative. The single most stunning was Zurich Centre Group’s decision not to relocate to the former GTE headquarters from New York City, thereby putting approximately 500,000 square feet back on the market. NatWest Markets, after signing a lease for 180,000 square feet at Harbor Plaza at year end 1997 decided almost immediately to remain in New York. Citibank Global Asset Management also announced that it would not move 300 employees from New York City. These announcements sent reverberations throughout the market and created some uneasiness. Did it signal an end of the interest in Stamford by such New York companies and what would the impact be on Stamford’s future as a growing financial center? These events also had a chilling impact on the proposed new downtown office towers. While all continued to promote the imminent start of construction, the proposals were becoming somewhat shelf worn. Another major reversal in the market during the year was Cendant Corporation’s decision to pull out of a proposed lease for 200,000 square feet at 20 Westport Road in Wilton. Also, Oxford Health Plans, one of the County’s fastest growing companies in the 1990’s, experienced serious financial difficulties and announced major layoffs that affected leased properties in Trumbull and Norwalk. Lastly, Tenneco Corp. headquartered in Greenwich, plans to restructure and place its headquarters on the market.

Interestingly, the GTE building has figured twice in two years in setting back the development timetable for the proposed office buildings in downtown Stamford. At year end, rumors grew louder that Purdue Frederick, a fast-growing Norwalk based pharmaceutical company, was considering purchasing the Tresser Boulevard landmark for its new headquarters. Should this occur, the bulk of the current vacancy in downtown Stamford will vanish and the central business district will benefit by the increase in diversity.

Despite the robust leasing activity, the availability rate inched higher at year end to 12.2% from 10.0% a year earlier. Absorption was negligible in the major properties totaling only 86,653 square feet compared to an annual average of 769,599 square feet in the prior five years. Tempering this apparent negative indicator is that there was very little new supply added in 1998, possibly constraining growth. Nevertheless, activity was strong enough to encourage many landlords to quote higher rental rates, especially in the Norwalk area market. In another sign of growing confidence, numerous landlords remeasured their buildings; all of which not surprisingly grew.

In Stamford, which contains almost half of the major properties, the availability rate jumped to 15.6%, which to a large extent resulted from the return of the GTE building to the market. In downtown Stamford, top buildings are now asking $35.00 a square foot for their limited availabilities. A two tier market is more evident with the gap becoming greater between premier space and secondary buildings. Also, the differential in rents between the Shelton and Danbury area submarkets compared to lower Fairfield County widened. Shelton, the only submarket to experience significant construction activity, also led in absorption with 107,782 square feet.

In 1998, six major leases of 50,000 square feet or more were concluded compared to ten in 1997.

Despite an unanticipated credit crunch in the second half of the year, the sales market for major properties set records in 1998. The major transaction was Nyala Farms Corporate Center which sold for $91,800,000 to a public pension fund. Characterized by a very attractive setting and major long term corporate credit worthy tenants, the 376,511 square foot property in Westport generated significant institutional investor interest. The highest price per square foot paid for a major property was 55 Railroad Avenue, in Greenwich, which sold for an astonishing $355 per square foot.

u	Leasing activity in Fairfield County remained robust in 1998 sustained by the continued economic expansion;

u	The Fairfield County office market was buffeted by a series of major negative corporate announcements thereby putting large blocks of space back on the market;

u	The availability rate in the major properties increased to 12.2%, the first increase in six years;

u	Absorption was essentially flat, with the Shelton region leading the submarkets;

u	.The additions to supply were modest given historical trends and existing inventory;

u	One of the oft-cited reasons for relocating from New York City, declining quality of life, is now much less of a factor thereby neutralizing one of Fairfield County’s advantages;

u	The Norwalk area is on the cusp of several major new development projects;

u	Institutional investors, especially public pension funds, were very active in the sales market.

Obviously, so much depends on the national economic situation and the health of Wall Street. A sharp decline in the financial markets could seriously impact Fairfield County, which during the 1990’s has become more reliant on this industry.

Assuming no major economic disruptions, 1999 will see slower but steady growth during the year. Rent increases will be less pronounced and construction of at least one downtown Stamford office tower should start. It’s questionable whether Norwalk will be able to digest more than one new office project start in 1999.

Developers will focus more interest on the south end in Stamford. Most of the efforts there will be for multi-family housing. Continued increases in such units are needed for Stamford to sustain both its growth and long-term viability.

The Shelton and Danbury area submarkets should continue to get serious consideration from major companies, especially those with significant numbers of mid-level employees. The availability of affordable housing, widening rent differentials and lack of traffic congestion will prove very compelling.

The Fairfield County major properties survey is composed of those properties that contain 100,000 square feet or more of rentable area or office parks that contain at least that amount. These properties represent 63.7% of the total market inventory and is that market component most favored by institutional investors and major corporate tenants.