A new report Monday on office leasing in the Hartford area did little to buoy hopes that employers are warming to expanding their payrolls.
"Tenants continue to remain reluctant to make real estate decisions due to the current economic environment, which is viewed as unstable by many corporate decision-makers," according to a report from commercial real estate services firm CB Richard Ellis.
Between April and June, tenants shed nearly 295,000 square feet more than were filled by new leases in the quarter, CB Richard Ellis said. That reversed a hopeful sign in the first quarter in which tenants leased 55,000 square feet more than was vacated in the same quarter.
How quickly vacated space is absorbed is a well-watched indicator of commercial leasing health because it is a gauge of how well a market can handle turnover and what the appetite is for expansion.
Through the first half of the year, tenants have vacated 239,000 square feet in Greater Hartford. CB Richard Ellis forecast in January that it expects that number to climb to 300,000 by the end of year, as large corporations continue to downsize.
That would represent the third straight year that tenants vacated more space in the area than was leased, but less than the 760,000 square feet in 2009 and 560,000 in 2008.
"We are treading water," said John M. McCormick, executive vice president at CB Richard Ellis in Hartford. "We're taking two steps forward and one step back."
The state's economy created nearly 9,000 jobs in the first four months of the year, raising hopes that a nascent recovery was underway and one that was stronger than expected. But in May, although the state added 5,200 jobs, temporary Census workers accounted for about 4,900.
Overall, office vacancies in Greater Hartford jumped to 19.1 percent in the first quarter, from 15.9 percent a year ago. The vacancy in the April-to-June quarter also is up from 17.5 percent in the previous quarter.
Space available for lease is even higher than what is suggested by the vacancy rates. Including space that tenants are trying to sublease — but still must pay rent on even if not occupied — about 22 percent of the market's space is available for lease.
McCormick said there were bright spots in leasing even though they aren't readily apparent in the numbers. Health insurer CIGNA, which has a major corporate presence in Greater Hartford, added 123,000 square feet in Windsor and The Capitol Region Education Council leased 47,000 square feet in Windsor at the old Advo headquarters.
Both transactions helped push down the vacancy rate in the suburbs north of Hartford, the only "submarket" to see its vacancy rate fall from April through June.
And while reinsurer Discover Re downsized in Farmington, from 100,000 square feet to 70,000 square feet, the company did not move out of the area, McCormick said.
Overall average asking lease rates remained relatively stable, at $19.04 a square foot in the second quarter, compared with a year ago and the first quarter of this year, the report said.
Pressure on landlords to offer concessions to tenants has not abated from the levels seen in the past 12 months, including months of free rent and financing for space improvements.
"Tenants that are either looking for space or are facing expiration dates are consistently opting for shorter lease renewals," the report said.
Reprinted with permission of the Hartford Courant.
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