Norwalk office market faces challenges but also shows potential
NORWALK — A telecommunications giant is staying put — confirmation of the city’s corporate appeal, but also a sign of its challenges.
Concurrent with its exit from bankruptcy late last month, Frontier Communications announced the signing of a new lease that will keep its headquarters at Merritt 7, a 1.4 million-square-foot complex that is the largest office park in Fairfield County and is also home to Hearst Connecticut Media’s headquarters.
But the company will be taking a fraction of the space it has occupied in recent years, highlighting the longstanding headwinds facing
Norwalk’s office market. Local officials and property owners remain optimistic, however, about the recovery of the state’s sixth-most-populous city from the pandemicsparked economic downturn.
“While we are seeing significant decrease in office-space demand, mainly due to changing workplace environments due to COVID-19, we are also seeing a significant increase in other job-creating uses such as industrial space,” Norwalk Mayor Harry Rilling said in an email.
Frontier re-commits to Norwalk
The new lease for about 48,000 square feet in Merritt 7’s 401 building dispelled longstanding uncertainty about Frontier’s postbankruptcy headquarters location. The company did not specify the length of the lease, but said that recent capital improvements at Merritt 7 and the property’s scope of amenities had helped persuade the company to stay.
“Frontier is excited to have our headquarters remain at Merritt 7,” Jim Campbell, a Frontier vice president, said in a statement. “After touring the market to find the best fit for our firm in the post-pandemic office world, Merritt 7 stood above all the competition.”
Frontier’s agreement comprised the largest leasing transaction of the first quarter in Fairfield County and more than half of the quarterly leasing volume in Norwalk, according to a recent report from commercial real estate firm Newmark.
Merritt 7’s ownership and management team hailed Frontier’s decision. As a result, the the sixbuilding campus, located off the Merritt Parkway and Route 7, will continue to house the headquarters of three Fortune 500 firms. Frontier ranked No. 393 on last year’s list, while No. 344 Emcor Group is headquartered in the 301 building, and No. 347 Xerox Holdings is based in the 201 building.
“We are delighted that Frontier Communications will be keeping its headquarters at M7,” Margaret Egan, senior vice president of asset management at Merritt 7 owner Clarion Partners, said in a statement. “The (property’s) renovation program and abundance of assorted meeting spaces and outdoor recreation areas have been well-received by tenants, and our state-of-the-art dual air filtration system and rigorous COVID re-entry protocols are giving tenants and prospects an added level of comfort and confidence in our property.”
But Frontier’s new deal entails a reduction of 52,234 square feet in its footprint at Merritt 7 as part of a “bankruptcy restructuring renegotiation,” according to Newmark’s report.
Messages left for Frontier this week seeking more information about the reasons for reducing its office space were not returned.
Declining occupancy levels
Frontier’s new lease has mitigated, but not reversed, a major challenge facing the city’s office market that long predates the pandemic.
“Occupancy levels in the Norwalk market continue to drop dramatically. This market’s overall availability rate, which has gradually increased since 2016, is quickly approaching the 40 percent mark,” Newmark officials said in their report. “Despite a 12.4 percent uptick
in leasing year over year, demand levels in this market are not enough to offset the glut of space currently available.”
Availability refers to the amount of occupied or unoccupied space available for lease or sublease, divided by the market’s total inventory. Norwalk’s nearly 40 percent rate in the first quarter compared with 34 percent in Stamford, 17 percent in Greenwich and 28 percent countywide.
Merritt 7’s website lists a total of about 350,000 square feet of available offices, equating to around 25 percent of the complex’s footprint.
“We’ve seen what’s gone on in the past 10 to 12 years in Stamford, with all the new residential buildings built in Harbor Point and downtown and the (office) buildings that have been repurposed to be multitenant buildings by some of the leading architectural firms,” James Ritman, a Stamford-based executive vice president at Newmark, said in an interview. “I think Norwalk lags a little bit on the residential side. And Stamford is closer to New York, with a little better train access. For those reasons, I think it’s been more in favor than Norwalk, and we’ve seen Norwalk have less activity over the last several years.”
The mass-transit access of Merritt 7 and neighboring properties will improve significantly with the opening of a Metro-North Railroad station at Merritt 7. The new hub is scheduled for completion in 2022, according to the Merritt 7 website.
“We remain confident in the city of Norwalk and are strong believers in the power of live, work, play communities like North Seven to attract companies and residents and ultimately serve as the economic engine for cities,” said Ted Ferrarone, copresident of Building and Land Technology, which owns more than 1 million square feet of office space in Norwalk, including several buildings that neighbor Merritt 7.
BLT is also the owner and developer of two apartment complexes that neighbor Merritt 7, 1 Glover and the Curb at North 7, which cumulatively house about 600 units. A new 294-unit building is scheduled to open this summer at the Curb.
In the meantime, businesses that choose Norwalk for their offices save considerably compared with locations closer to New York City. In the first quarter, the city’s asking price per square foot on an annualized basis averaged $32.15, compared with $42.41 in Stamford and $58.57 in Greenwich, according to Newmark.
In addition to office tenants, Rilling also cited a recent influx of new residents and “new large-scale commercial bakers coming in, tool manufacturing, fabric printers, hydroponic farmers, brewing and food manufacturing.” Norwalk’s population totaled about 89,000 in 2019, according to U.S. Census Bureau data.
“We are pushing a large marketing campaign for Norwalk to draw businesses to the city by promoting our quality of life and incentives,” Rilling said. “We have also been a partner with (economic development nonprofit) Advance CT to help find space for larger office, industrial and flex (space) tenants. The creation of the (city’s) business development and tourism team creates a built-in support system for any new or existing business in Norwalk.”