Greater Hartford Office Market Feels Pain Of Recession
KENNETH R. GOSSELIN
January 17, 2009
In the thick of a recession, the office market in Greater Hartford isn't escaping a bruising.
A clear sign came Friday at the annual commercial real estate outlook conference in Hartford sponsored by CB Richard Ellis. The Greater Hartford market, which includes downtown Hartford and the surrounding suburbs, saw 560,000 square feet of space become vacant in 2008 that wasn't offset by new leasing.
The number was a wrenching change from 2007, when tenants absorbed all of the space that came onto the market that year, plus another 100,000 square feet.
It shows how the recession has caused a pullback in leasing as employers seek to live with the space they have or reduce space as they lay off workers.
"We would not be surprised to see another negative number this year," said Michael Puzzo, a first vice president at CB Richard Ellis who presented the office report at the conference.
In 2008, office vacancies rose to 17.5 percent, up from 15.4 percent in 2007. The average asking rent rose to $19.90 per square foot, from $19.14 in 2007, according to CB Richard Ellis.
In 2008, the largest portion of the vacant 560,000 square feet — 475,000 square feet — was prime Class A space. It was the first time since 2002 that vacant space had not been offset by leasing.
There may not be a turnaround any time soon. Some economists believe the recession will stretch well into this year, with only a modest recovery going into 2010.
Edward Guay, an economist at Wintonbury Risk Management in Bloomfield, said he does not expect the national economy to start humming until 2011.
In Greater Hartford and central Connecticut, he believes that the commercial real estate market will escape the worst of the downturn because there has been no excessive building, particularly of office space, as in the 1980s. "I think it's manageable," Guay said.
He noted, however, that property owners who bought at the peak of the market could get into trouble if they lose tenants. Although he does not expect those problems to be widespread, he says Greater Hartford won't be immune.
Puzzo pointed out that most of the space that became vacant in 2008 and was not offset by new leases was attributed to MetLife's moving out of 375,000 square feet of space at CityPlace I in downtown Hartford. Although MetLife moved to Bloomfield, staying in Greater Hartford, it purchased new space, rather than leased it. So the move did not offset the space it had vacated, Puzzo said.
Puzzo said competition for tenants, already fierce, particularly in downtown Hartford, likely will intensify in the coming year. Landlords probably will be compelled to further sweeten deals by adding incentives, such as paying for improvements or months of free rent.
That could benefit tenants that are in a position to move, Puzzo said.
Other speakers at Friday's event said there would be a slowdown in Greater Hartford. No new industrial or warehouse construction is expected unless a tenant has signed prior to construction, something that has not happened in 15 years, given the area's popularity as a distribution center.
Reprinted with permission of the Hartford Courant.
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