When MetLife finishes its move from downtown Hartford to Bloomfield later this year, the insurer will take 1,300 employees out of the city and dump 375,000 square feet of prime office space on the market.
That amount of vacant office space would represent a dramatic reversal of improving vacancy trends in the city's central business district outlined in a new report by commercial real estate broker Cushman & Wakefield of Connecticut Inc.
In the first three months of this year, the vacancy in prime, Class A space was 13.7 percent, down from 15.5 percent for the same period a year ago, according to Cushman & Wakefield.
But if all the MetLife space at CityPlace comes back on the market, the vacancy in Class A space would jump about six percentage points, pushing it close to 20 percent. Adding that much space would erase all the recent gains made when Travelers leased 300,000 square feet in the city as part of an expansion.
"Statistically, that gets us back to the early to mid-1990s," said John M. McCormick, executive vice president at commercial real estate services firm CB Richard Ellis in Hartford. "That doesn't help us."
The leasing of office space is a well-watched indicator of an area's economic health because it shows whether employers are adding or cutting jobs. In downtown Hartford, fluctuations in Class A vacancy are closely followed because Class A space encompasses three-quarters of the central business district office market.
Although downtown leasing remains active — a key difference compared with the early 1990s — the uncertain economy is a concern and tenants still generally have the upper hand in negotiations with landlords.
Some brokers are already factoring the MetLife space into their vacancy figures, but Cushman & Wakefield said it won't do that until the insurer's lease expires in October. Until then, MetLife is on the hook to pay the rent unless it subleases the space.
The prospect of higher vacancy rates downtown isn't welcomed in a market that has struggled for years to build leasing momentum. But McCormick and others say there are major differences between now and the early 1990s, when Connecticut and the rest of New England was stuck in a devastating recession.
Back then, office leasing slowed significantly. Now, office leasing remains relatively healthy, propelled by a series of smaller deals, including tenants such as law firm Cantor Colburn that relocated from Bloomfield to the 20 Church Street tower and are new to downtown.
Travelers remains active in adding space. On top of the 300,000 square feet, Travelers has signed new leases for another 36,000 square feet at State House Square and an additional 18,000 square feet at One Financial Plaza, the "Gold Building."
XL Insurance, which now has the naming rights for the former Hartford Civic Center, just took another 12,000 square feet at 100 Constitution Plaza, bring its total leased space in that tower to 81,000 square feet.
"The city already has had a chance to do a lot of leasing to mitigate the loss of MetLife," said Jonathan K. Putnam, executive director at Cushman & Wakefield's Hartford office. "There is very healthy leasing activity downtown."
The wild card is how deeply the state is affected by any economic recession. So far, at least, the city has been spared any major office closings or layoffs, though that has happened in a couple of instances in the surrounding suburbs, Putnam said. Nationwide Insurance, for example, announced that would close its office at Corporate Ridge in Rocky Hill.
"We haven't seen a big fallout from the economy," Putnam said. "I'm not saying it won't hit us, but we haven't seen it yet."
Despite leasing momentum downtown, it is expected to remain a tenant's market because the MetLife relocation will keep lease rates down. According to Cushman & Wakefield, the average rental rate for Class A space was $20.75 in the first quarter, essentially flat with the same three months in 2007.
In a recent report, commercial real estate services firm Jones Lang LaSalle said landlords are expected to continue offering concessions such as two to three months of free rent outside the term of the lease and tenant improvement allowances.
Reprinted with permission of the Hartford Courant.
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