Property Rounds: Year of changes in commercial property market expected
Last year saw a clear shift in southwestern Connecticut’s commercial real estate market, including its office, retail and industrial sectors, according to brokers around the region. As 2018 unfolds, they’re expecting even more changes.
As numerous retail corporations collapsed in 2017, they shuttered scores of storefronts around the country, including shops headlining Fairfield County shopping centers. Particularly in Greenwich, some brands’ restructuring hit hard, leading to closures including at Ralph Lauren and Michael Kors.
This trend could lead to a reckoning with retail rent prices in the new year, especially on Greenwich Avenue, said James Ritman of Newmark Knight Frank. “Just like when the stock market sees uncertainty and you see a correction in investor confidence with a sell-off, owners of real estate on the avenue and throughout Greenwich have to look at a correction in order to make retailers profitable. No retailer wants to leave Greenwich Avenue, but because of corporate closings, they have to look at sales versus rents, and they’re being forced out when the sales don’t justify the rents.”
More retail closures in Greenwich are likely over the next several months, he added.
“Some of the retailers there were probably just hanging on for the holiday season and will hang out through January, but starting in February those who didn’t have a good holiday season will look to leave,” Ritman said. “You will probably see more closings than openings in the first quarter. Some of that is Greenwich but a lot of it is corporate.”
It would benefit municipalities around the region, including Greenwich, to mimic the actions of “smart retail developers” who are repurposing spaces for tenants that provide food and beverage services as well as entertainment and exercise, he said. “That makes a street or mall more relevant for more of the day, which helps everyone,” he said.
That would typically entail changes in zoning regulations, Ritman said.
Building on assets
In Bridgeport, several such big-ticket development plans are already in discussion or planning phases. According to downtown developer Phil Kuchma, the changing retail climate calls for an emphasis on small businesses rather than brands that bring big box stores.
According to Kuchma, whose Kuchma Corp. has been a driving force behind downtown Bridgeport’s rehabilitation, there’s not much demand there for office or retail uses of more than a few thousand square feet, but smaller tenants continue to drive the city’s commercial hub.
“We need to take advantage of the great, unique kind of buildings that we have and of our terrific geographic location,” he said. “I think where we can really show great activity is with the businesses that are creative-economy-type businesses made up of artisans and artists of all kinds.”
When it comes to the office market, cities like Stamford and Danbury are expected to experience much of action despite both currently registering high vacancy rates.
Metrics in both markets are dragged down by high-profile vacancies. In Stamford, it’s 677 Washington Blvd., Silicon Harbor and the BLT Financial Centre.
“Between those three buildings you’re almost at 1.5 million square feet of vacancy. Take those away, and I think of the rest of the central business district and much of the South End are doing well,” said Christian Bangert of Rhys Commercial.
In Danbury the sole outlier, 1.3-million square-foot Matrix Corporate Center, contributes heavily to the city’s vacancy rate as it sits mostly empty. Meanwhile, the rest of its class-A office market is tight, according to Gus Ryer of Ryer Associates Commercial Real Estate.
Danbury’s class-B market, which has been sluggish, could pick up as class-A tenants look to downsize, Ryer said.
“Greater Danbury and Fairfield County as whole is a bright spot in Connecticut. It beats the rest of the state in nearly all metrics,” Ryer said.
‘A pivot year’
Norwalk demonstrated its draw last year by luring the headquarters of Remedy Partners from Darien. The company is spending $1.9 million on its new offices at 800 Connecticut Ave., with the complex also seeing the loss last year of the sports and entertainment marketing agency Octagon to Stamford’s Shippan Landing complex.
Though 2017 was hurt by news including Marriott International’s and General Electric’s downsizing affecting Stamford and Norwalk, the year ahead appears bright to some given other firms’ investments in southwestern Connecticut.
“We think that 2017 was a pivot year — and I’ve been more than tepid on the market the past few years because it’s felt like Groundhog Day,” said Jim Fagan of Cushman & Wakefield. “But if you look at how many companies and capital sources are pouring money into our marketplace, it’s historic. … We went from a period where every time we turned around somebody was leaving or downsizing, to a time when (companies) are adding.”
Cushman & Wakefield tracked southwestern Connecticut deals totaling 2.3 million square feet of space last year, down from about 2.5 million square feet in 2016.
Fagan stated he expects those trends to continue as companies consider the needs of employees, and as Manhattan companies consider Connecticut for possible expansion or relocation. Several have been sniffing around for space of late, he added, without identifying them.
“Everybody piled into the ‘24-7’ cities as they tried to attract the newest employees and millennials,” Fagan said. “As millennials mature, they are going to move to the suburbs, (and) as they move to the suburbs the corporations are going to use a hub-and-spoke strategy to keep those employees.”
Chris Bosak, Jordan Grice, Paul Schott and Alexander Soule contributed to this article.
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