Greater Hartford's office market — a barometer for the health of the area's economy — grew even more fragile in 2010, with vacancy in downtown Hartford rising to levels not seen since the devastating recession of the early 1990s.
Nearly one-third of all the office space in the city's central business district — 2.4 million square feet — is empty. And it could get worse this year, experts say.
A new report from commercial real estate services firm CB Richard Ellis shows the troubling rise in vacancy in Hartford's central business district to 30.2 percent at the end of 2010, up from 18.3 percent a year earlier. In the broader region, office vacancies in Hartford and the surrounding suburbs jumped to 21.5 percent at the end of 2010, compared with 17.4 percent a year earlier.
Longtime commercial real estate observers in Hartford say the increased vacancies in the city are the highest in recent memory.
"I can't recall vacancy numbers being higher than they are now," said William Farley, a veteran Hartford broker at CB Richard Ellis. "It's lack of demand. It's as simple as that."
The region's commercial office market has long suffered from a lack of relocations — particularly into the city — leading to intense competition among landlords for tenants, even in good economic times. Now, as the recent recession has tenants cutting back on space with few expanding, the dearth of new tenants is pushing vacancies higher.
Job growth also remains sluggish in the state, with unemployment stuck at or near 9 percent for months.
The area is bracing for two high-profile downsizings this year. Financial services giant ING Group is vacating 75,000 square feet at State House Square in downtown Hartford, consolidating those operations to its Connecticut headquarters in Windsor. And Aetna Inc. is leaving 65,000 square feet on Addison Road in Windsor.
Major corporations are the cornerstone of the area's commercial office market. While companies such as Aetna, ING, The Hartford, CIGNA and Travelers all occupy millions of square feet that they own, they also lease space. And in some cases, they have pulled back dramatically in recent years.
Three prominent office buildings in the city of Hartford — the Bank of America building at 777 Main St. and the two-tower Connecticut River Plaza on Columbus Boulevard — also will be empty. On top of that, Northland Investment Corp., the area's largest landlord, has lost Metro Center One in a foreclosure — a sign of a weakened office market, although the 12-story tower is still 80 percent leased.
In 1992, the collapse of banking in New England and downsizing by insurers pushed the region's vacancy rate to 24 percent, higher than it was in 2010. And in 2003, after the dot-com bubble burst, office vacancies peaked at about 20 percent, lower than in 2010.
Comparable data for the city of Hartford and the central business district wasn't available Monday. But it appears the city fared better than the region as a whole in the previous economic downturns.
Average asking rents remained relatively flat at the end of 2010 compared with a year earlier, avoiding the dramatic plunges in some areas of the region in the early 1990s.
In 2010, for the third year in a row, Greater Hartford saw hundreds of thousands of square feet of space become vacant in 2010 that wasn't offset by new leasing, according to the report.
The tally in 2010 — 273,000 square feet — was nearly a third less than the previous year's total of 760,000 square feet and below the 300,000 square feet forecast by CB Richard Ellis. But the biggest hits came in the city of Hartford, particularly the central business district.
Even with climbing vacancies, the office market east of Hartford, which includes Glastonbury, was relatively robust with a 10.8 percent vacancy rate. And in downtown Hartford, there was more than 275,000 square feet in leasing activity last year.
John M. McCormick, executive vice president at CB Richard Ellis in Hartford, said last week he expects the trend to continue this year, with another 300,000 square feet not offset by leasing.
"Current market conditions have certainly created a crossroads for landlords and tenants," McCormick said at CB Richard Ellis' commercial real estate outlook conference last week in Hartford, where the report was released.
While the market remains heavily tipped in favor of tenants, tenants may not find landlords willing to extensively fund space improvements, if at all. Landlords have been squeezed by rents that have remained flat compared with last year, even as expenses such as taxes have risen.
Reprinted with permission of the Hartford Courant.
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