‘ A period of adjustment’
Southwestern Connecticut’s office leasing starts uncertain recovery
Southwestern Connecticut’s office- leasing market experienced a quiet summer, as it started to rebound from the initial shock of the coronavirus crisis, according to a new report from commercial real estate firm Newmark Knight Frank.
Several deals in Stamford and Greenwich helped Fairfield County improve upon a mostly dormant second quarter and could create momentum for more deals in the next few months. But the precipitous drop in leasing volume from last year points to a prolonged recovery, with major uncertainty lingering about when tenants will return to their offices and the extent to which companies will commit to new long- term deals.
“We’ve all been experiencing a period of adjustment,” Karolina Alexandre, a Stamford- based research manager at Newmark, said in an interview. “We’re still seeing a preference from companies for ( lease) extensions or renewals, but we did see some significant long- term commitments. There’s still demand for office space.”
Major slowdown
Fairfield County’s leasing volume increased nearly 12 percent from the second quarter, to a total of about 510,000 square feet. But it trailed by nearly 25 percent the amount in the third quarter of 2019.
“You had deals (under-negotiation) in Stamford with companies in the market already that were looking to move or renew, and a lot of that was put on hold or paused because of what was happening with COVID,” said James Ritman, a Stamford- based executive vice president at Newmark.
While the leasing activity remained sluggish, Fairfield County’s vacancy rate has
not changed much recently. It ran at 27.8 percent, compared with 26.9 percent a year ago.
The vacant space includes about 260,000 square feet that has come online this year at 201 Tresser Blvd., in downtown Stamford. Newmark officials said the majority of the newly available offices there has resulted from two companies’ plans that predate the coronavirus crisis: OxyContin maker Purdue’s Pharma’s downsizing in the building and the upcoming relocation of telecommunications giant Charter Communications to a new headquarters a few blocks away at 406 Washington Blvd.
“I think it actually could have been a lot worse,” Alexandre said of the county’s quarterly performance. “It was in line with what we were expecting.”
Bright spots
Despite much of the market remaining in a torpor, a handful of companies did sign major deals.
In the county’s largest lease signed in the past quarter, Berkley Insurance Co., a subsidiary of Greenwich- based insurance giant W. R. Berkley Corp., agreed to take about 63,000 square feet at the Metro Center office complex at 1 Station Place in downtown Stamford.
Berkley Insurance is set to relocate in the summer of 2021 and occupy through 2033 one and a half floors at Metro Center, which stands across the street from the downtown Metro- North Railroad station. Berkley Insurance is now based a few blocks east at 301 Tresser Blvd.
Other notable deals in the quarter included three lease renewals: Philips North America for about 47,000 square feet at 1600 Summer St., in Stamford; LonePine Capital for around 39,000 square feet at 2 Greenwich Plaza in Greenwich; and Northern Trust Global Advisors for approximately 24,000 square feet at 300 Atlantic St., in Stamford.
NKF officials said they expect more large deals to materialize, with Stamford and Greenwich ranking among the most popular destinations.
“You have individuals who’ve moved out here, companies with leases that are going to be expiring in New York City and questioning how much space they want and do they want to diversify ( locations) and companies that have been looking out here anyway,” Ritman said. “The numbers won’t reflect them right now. But in the next quarter and well into 2021 and beyond, you’re going to see a lot more demand.”
Long- term uncertainty
Metro Center’s landlord, Empire State Realty Trust, said that it is seeing companies return in large numbers to their offices. In the week ending Oct. 30, the tenant populations across its Connecticut properties — which also include First Stamford Place in Stamford and MerrittView in Norwalk — were running at 55 percent of their February levels.
The company has received “positive feedback from our tenants regarding the fact that ESRT has developed a clear pathway for the safe and healthy return of their employees to the office,” said Senior Vice President Jeffrey Newman.
But many large employers have not yet re- opened their offices. Their absence is acutely felt by restaurants and retailers in cities such as Stamford whose major companies had generated many customers for those businesses.
“The problem is that the support services are being cut back because they’re not needed because nobody is at the commercial office buildings,” Stamford Mayor David Martin said Thursday in his State of the City speech. “People who go out at lunchtime and attend one of the restaurants in the downtown or the South End or wherever it might be in the city of Stamford, they’re not doing that because they’re not here.”
The escalation in infection rates in Connecticut and the rest of the country amid a second wave of the virus has only reinforced the corporate community’s caution. This week, Gov. Ned Lamont moved Connecticut back to a modified second stage of its reopening.
At the same time, some firms have made sweeping changes. Consumer financial- services giant Synchrony last month announced a new policy that allows employees to permanently work from home.
“These changes stem from our employees’ desire to work from home,” Synchrony CEO Margaret Keane said on an Oct. 20 earnings call. “Their productivity in this environment will help us drive long- term efficiency and profitability.”
In a related change, Synchrony is planning to reduce its real estate footprint. But it is keeping its Stamford headquarters at 777 Long Ridge Road, near the Merritt Parkway.
“Companies are starting to come to grips now with the notion that they have too much space and that their future will require less offices and maybe a bit of a different layout and design as it relates to office space,” said David Lewis, founder and CEO of Norwalk- based HR services firm Operations Inc. “I think the companies that are struggling right now with this are ones with leases coming up for substantial space in the next six to 12 months… You don’t really know how all of this is going to look.”
NKF officials remain hopeful, however, that the recent deals signed by the likes of Berkley reflect a sustained belief in the importance of office- based work.
“Companies are being very cautious about the virus and bringing employees back,” Ritman said. “However, we don’t talk to anybody who doesn’t want their employees to come back. They want their employees to be together, to be collaborating, to be exchanging ideas. There’s a lot being lost right now in company culture and collaboration.”