Commercial Real Estate Market Looking Up

Well, there's the bad news, and then there's the good news.

Bad news first: Overall vacancy in the Fairfield county office real estate market is still high, according to the international real estate services firm Cushman & Wakefield, which provided the data for this article.

 22.8% of the office space in Stamford's central business district remained empty in the first quarter of 2010 compared to 16.1% in Greenwich. As the bulk of the office space is situated in these two towns, they're true barometers of market trends when it comes to commercial real estate – as well as the local economy,

Stamford's vacancy rate increased from the last quarter of 2009 by 17,818 square feet. Greenwich, on the other hand, saw their vacancy number drop by 99,126 square feet.

"Fairfield's market is soft. We haven't completely stabilized yet," said Jonathan Mazur, an assistant director at Cushman & Wakefield in Stamford. "We lag behind New York city, and they're already showing signs of strong recovery. We're not there yet, but maybe not that far off."

County-wide, the vacancy rates for commercial space remain steady at 19.7% for prime buildings. The Westport submarket has fared better. Vacancy dropped slightly, from 13.4% in the final quarter of last year to 12.8% in early 2010. (The difference equates to about 7000 square feet of space.)

In the county, Fairfield had the lowest first quarter vacancy rate of 4.6%.

Now, the good news: commercial vacancy, while high, may just have bottomed out. Leasing activity jumped in the first quarter of 2010 and was nearly double that of the previous quarter. And the vacancy rates are actually lower than the Cushman & Wakefield analysts predicted. Both the first quarter of 2010 and the fourth quarter of 2009 posted better-than-expected numbers, leading to some optimism.

Westport shared in that positive trend and witnessed 30,000 feet of office space leased out in the first three months of 2010.

Mazur believes the market will continue to be soft for another year, maybe dipping even a bit lower. In all likelihood, we'll see New York city's resurgence spread to Fairfield county by next year. "There are positive signs that things are picking up," he said.

Employment was flat in Fairfield county in the first quarter and jobs correlate directly to office space. "The overall economy is getting better," said Mazur, "but certain sectors lag, and real estate is one of them. We're stabilizing and growth is going to happen."

Since vacancy rates are still high, rents per square foot have dropped. "Typically in a down market, the landlord will do more to secure a tenant, like offering free rent or tenant improvement dollars [to subsidize their build out.] It's not unheard of in a larger deal for a tenant to get five to ten months free," said Mazur.

Rents in Greenwich, since they climbed the highest in the market bubble, have fallen the most. Prices per square foot there are currently at $55.93 compared to a high in 2008 of $77.81.

"It's a tenant's market right now. We have a trend of early renewals of leases," said Mazur. "Tenants want to lock in new lower rates, and landlords are happy to lock them in for a longer period of time."

In Westport, space is currently leasing at $35.30 per square foot, down from $37.51 last quarter.

Jim Fagan, senior managing director at Cushman & Wakefield spoke to New Canaan Patch in October '09 and accurately predicted that the vacancy rates would remain high for the next six to twelve months before recovering. Seven months later, he's sounding rather upbeat. "I think we'll look back," he said, "and determine that the market bottomed out in late '09/early '10."