Hartford Mired In Office Vacancies While Other Cities Make Gains
By KENNETH R. GOSSELIN
January 16, 2012
Downtowns in Providence, Springfield and other New England cities gained traction last year in their assault on office vacancies left over from the recession, as employers cautiously began leasing space in greater numbers.
But downtown Hartford is still waiting on the sidelines — and prospects for 2012 are few.
A new report from the commercial real estate services firm CBRE-New England showed vacancy rates in all office space in downtown remained stuck at more than 30 percent in 2011 for the second year in a row, meaning that nearly one-third — or 2.4 million square feet — of the available space was empty. In the broader region of Hartford and the surrounding suburbs, overall vacancy rates hovered near 22 percent for a second year.
Experts say that Greater Hartford will have a tougher time digging out because it is much more dependent on big corporate employers such as Aetna, Cigna and Travelers that own the buildings they occupy. It will take them time to move back into available space in those buildings before they consider leasing space elsewhere and become comfortable that the economic recovery is gaining momentum.
"We don't have as much diversification in our office market as other cities," said Edward Guay, economist at Wintonbury Risk Management in Bloomfield. "In other cities, smaller businesses take up small bits of space and it starts to add up."
Guay said that small and mid-size leases — 50,000 square feet or less — are being signed in Greater Hartford, but the deals aren't yet helping to chip away at vacancy rates because other tenants still are downsizing and shedding space.
CBRE noted that 10 companies expanded last year in Greater Hartford, signing leases for prime office space ranging in size from 6,500 square feet to 29,000 square feet. That helped to partly offset the downsizings, but tenants still gave up more space last year than they leased anew.
The area's office market has long suffered from a lack of relocations — especially to the city — leading to intense competition among landlords for tenants already in the market. The dynamic has made it difficult to bring down vacancies, even in good economic times.
Office vacancy is a key barometer of the health of an area's economy. An office market is considered robust if vacancy is in the low teens. When the rate falls below 10 percent, the area is ripe for new construction.
John M. McCormick, CBRE executive vice president and office market expert, said he believes that some of the area's large employers might now be nearly ready to consider leasing more space.
"We do feel very bullish that several have backfilled their owner-occupied campuses and could be very active prospects for the market in 2012," McCormick said. He declined to name specific companies.
But McCormick said that he still expects tenants to give up 200,000 square feet of space more than they lease in 2012 — half in downtown Hartford, half in the surrounding suburbs.
Nationally, according to the real estate tracking firm Reis, office vacancy rates were 17.3 percent at the end of last year, down slightly from a year earlier.
At the end of last year, Providence — a city of comparable size to Hartford — had its office vacancy drop to 16 percent from 18.9 percent a year earlier, the lowest level since 2008, according to CBRE. Springfield's progress was slower, dipping just below 13 percent, just slightly lower than 2010.
Other Connecticut Cities
Elsewhere in Connecticut, downtown New Haven, which didn't have a major jump in vacancy in the last recession, still had its numbers drop to 10.9 percent, from 13.7 percent. New Haven, bolstered by Yale, also is seeing increased leasing from tech firms.
The challenge for downtown Hartford is certainly daunting. Two buildings — 777 Main St., the former Bank of America building, and the two-towered Connecticut River Plaza — are empty, totaling 830,000 square feet of office space, or one-third of all vacant space.
The Bank of America building, owned by Michael Grunberg, is for sale or lease and could possibly be used for housing. The new owners of Connecticut River Plaza, FBE Limited and Cammeby's International, are sinking $8.5 million into renovations at the complex in hopes of attracting tenants.
The vacancy numbers tell only a part of the leasing story, however, especially in downtown Hartford. Several buildings, including CityPlace, the tallest building in the city, are nearly fully leased. CityPlace is seen as such an attractive property that it quickly went under contract after it was put up for sale this summer.
The city of Hartford hopes to attract businesses to the central business district and elsewhere by lowering commercial property taxes through the combination of a drop in property values and the elimination of a tax surcharge. Tax bills on prime properties could decline by 5 percent to 30 percent.
Average asking rents in downtown Hartford stood at $19.92 a square foot at the end of 2011, compared with $20.26 a year earlier, CBRE said.
McCormick said he expects an increase in large blocks of space coming onto the market this year, putting pressure on landlords to offer increasingly competitive rent and concession packages. The area remains firmly a tenant's market.
"Moving forward, if landlords want to be successful, they will need to cater to both the large and the small employer," McCormick said. "Most of the 2012 leasing activity will be relocations within the market, with the potential for suburban tenants to relocate to Hartford."
Reprinted with permission of the Hartford Courant.
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