Pandemic leaves mark on Conn. office market
Last year’s onset of the coronavirus pandemic forced companies across Connecticut to vacate their offices and brought the commercial real estate market to a near halt.
Today, the containment of COVID-19’s spread in the state and an improving economy have brightened the outlook — but a return to the office landscape of the previous decade appears unlikely.
While some companies are signing new deals, leasing activity still significantly trails previous years’ output. At the same time, corporate tenants have adjusted to remote working — and many are taking a cautious approach to office re-openings.
“Health and safety, real estate design and uncertainty are reasons why companies are going slow,” Brian Kropp, chief of research for the HR practice at Stamford-based consulting and research firm Gartner, said in an interview. “They don’t want to make a big misstep in the re-opening process, so it’s a go-slow-and-learn process.”
Leasing slowdown, but interest from New York firms
The office leasing market continued to face major headwinds in the first three months of 2021.
In the first quarter, leasing activity in Fairfield County totaled about 630,000 square feet, according to data from commercial real estate firm Newmark. In comparison, the county had averaged a total of about 810,000 square feet of deals in the first quarters of 2016 through 2020.
The county’s vacancy rate ran at 21 percent, compared with 18 percent in the first quarter of 2020 and 17 percent in the first quarter of 2019.
But there are also auspicious signs. In response to the pandemic’s disruption in New York City, many firms with offices in the five boroughs have turned their attention to southwestern Connecticut. In an average year, Fairfield County records about 40,000 square feet of leasing deals from tenants with offices in New York City, according to Newmark. That total in the past year jumped to approximately 250,000 square feet, across 20 deals. Stamford and Greenwich have proven to be particularly popular destinations for those companies.
During the past quarter, Digital Currency Group led the New York newcomers. It recorded Fairfield County’s second-largest leasing transaction of the past quarter by taking nearly 46,000 square feet in the waterfront Shippan Landing complex in Stamford, space that will complement its main offices in Manhattan, according to Newmark.
“We would have hoped that maybe there would have been more (deals), but we were anticipating that there was going to be a number of deals and some (office) absorption as part of the reaction to COVID and companies looking to come out here,” said James Ritman, a Stamfordbased executive vice president at Newmark. “And not to be downplayed is the wave of residential activity and people who have moved out of New York City.”
Among upcoming arrivals in southwestern Connecticut, Webster Bank plans to relocate its headquarters from Waterbury to Stamford as part of its $10 billion merger with Sterling National Bank. Since 2018, Webster has leased offices at 200 Elm St., in downtown Stamford, but the bank has not announced yet the new headquarters’ ad
dress.
“The best method of encouraging companies to re-open is creating an environment where they want to do business. We've been working with our local business partners and responding to their concerns throughout the pandemic,” said Stamford Mayor David Martin. “In the New York metropolitan area, I believe Stamford has earned the reputation for responding diligently to this pandemic. Ultimately, good municipal management and investments in transportation infrastructure will attract the future workforce, and businesses will go where that workforce wants to live.”
State Rep. Caroline Simmons, who is challenging Martin for the Democratic nomination for Stamford mayor in this year’s municipal election, said that if she were elected mayor that she would create a “Small Business Recovery Fund” to help businesses re-open their offices. She also pledged to launch a marketing and recruitment campaign to attract businesses and entrepreneurs to Stamford.
“The high office vacancy rate in Stamford and Fairfield County presents a unique opportunity to help our existing businesses re-open by providing rental and mortgage assistance and access to capital and to attract new businesses to our city at a time when entrepreneurs and businesses are looking to move out of New York City,” said Simmons, who is co-chairwoman of the state legislature’s Commerce Committee.
Embracing remote work
Many office buildings are still thinly populated — in large part because of the popularity of remote working.
“We’re proud of our 10,000 employees globally for how they’ve adjusted, how they’ve been transparent and how we’ve communicated with them,” Paul Wolfe, senior vice president of human resources at job-search giant Indeed, said in a recent interview. “They certainly all wouldn’t choose remote working, but we’ve learned that our employees can be equally productive working at home, and flexible work options give us a better quality of life.”
Indeed, which has more than 1,000 employees based in Stamford, became in March 2020 one of the first large companies in the state to temporarily close its offices and move all of its employees to remote setups in response to COVID-19’s spread.
Employers have also learned how to foster collaboration and solidarity in a remote environment.
“We had to be a little bit more intentional and deliberate about nurturing that culture and supporting our people, with simple things like reaching out and asking them what they needed and how they were doing,” Allan Colaco, Stamford managing partner for professionalservices firm KPMG, said in a recent interview.
Some companies, however, have maintained an office presence since the start of the pandemic. Stamfordhead-quartered Charter Communications, the provider of Spectrumbranded cable, phone and internet services, has kept its offices open through a government designation as an essential business.
After many employees expressed their misgivings in March 2020 about the company’s office policies, Charter made a number of concessions that included providing additional paid time off and more options for working remotely.
“We have operated our Stamford facilities at significantly reduced occupancy with the majority of our employees on a hybrid and/or a rotating schedule,” the company said in a statement this week.
Slow return
Property owners and commercial real estate agents are hoping that COVID-19 vaccines and a rebounding economy will spur office reopenings and more leasing deals.
In the past week, Connecticut’s total number of doses administered for every 100,000 people ranked No. 1 among the states, according to data from the Centers for Disease Control and Prevention.
On Thursday, the U.S. Commerce Department reported that the national economy grew at a 6.4 percent annual rate in the first quarter.
“We’re very optimistic, and the vaccine has a lot to do with it,” said Karolina Alexandre, a Stamfordbased research manager at Newmark. “I think in the next six to 12 months we’ll see more activity from companies that were sitting on the sidelines watching how things were going to play out. They’re going to have to make a decision, so we’re going to see that translate into leasing activity.”
At the same time, government restrictions are loosening. In Connecticut, a range of properties, including office buildings, were permitted to return to full capacity on March 19.
But many companies are still charting gradual returns to their offices. Indeed will not require any of its staff to come back to its offices until September at the earliest. KPMG will not mandate that any employees report to its offices or client sites before July.
Even as offices re-open, remote working will not disappear. Stamford-based Synchrony, the country’s largest private-label credit card provider, announced last October that it would allow employees to permanently work from home.
Similar trends have emerged around the country and abroad. Forty-five percent of HR executives at companies based in North America and Europe said last month in a Gartner survey that they expected their workplaces to re-open in the third quarter of this year. About one quarter of the survey respondents said that they were planning for re-openings in the fourth quarter.
The majority of the surveyed organizations are planning for a hybrid workforce, with only 1 percent expecting their employees to work full-time in the office, according to Gartner.
“For the vast majority of employers, they are going to have a chunk of their employees working remotely on any given day,” Kropp said. “For the majority of employees, work is going to look something like ‘I come in Tuesdays and Wednesdays, I work from home Thursdays and Friday, and sometimes I come in on Mondays.’ That version is going to be different for every employee, based on what makes sense for their schedule, working patterns and personal life.”