🔒Bottoming out? Don’t bet on it. 40% office vacancy rate for towns north of Hartford prompts talk of conversions, demolition

After two years of a fruitless search for tenants, Mark Greenberg is “more than considering” converting a vacant 46,000-square-foot office building at 10 Targeting Centre in Windsor into apartments.

“It’s a great building, but nobody needs office right now,” Greenberg said. “So, it’s a great building that nobody needs, that doesn’t have a use.”

It’s no secret that the general office market has taken a hard knock due to changing work patterns in the wake of the COVID-19 pandemic. But towns immediately north of Hartford have had a particularly tough run – with vacancies reaching 40.5% as of the end of the first quarter, according to CBRE’s most recent market report.

Vacancy in the “Hartford north” market – which includes 4 million square feet of office space in the towns of Bloomfield, East Granby, East Windsor, Enfield, Windsor and Windsor Locks – has more than doubled over the past seven years and is more than twice as high as other sections of Greater Hartford, according to CBRE numbers.

Broadly, the CBRE report notes the pandemic’s continuing impact on the office market, with tenants migrating to smaller, often highly-amenitized spaces and opting for shorter lease terms.

Greenberg, an influential developer with holdings across the state, said there is no question the struggles in the Greater Hartford office market will get worse as more leases expire and more companies downsize their footprints.

“The real question at this point in time is what percentage of the space they currently have will be given back to landlords at their lease expiration,” Greenberg said. “That is the real struggle right now. Frankly, my guess is 10% to 40% of space will be given back over a five-year period.”

There is simply too much inventory, particularly in the Hartford north market, Greenberg said. Buildings that are functionally obsolete or have remained vacant for too long must be demolished or repurposed until the area’s square footage more closely matches demand, he said.

“We have too much stuff, too much real estate, too much bricks and mortar,” Greenberg said.

In early June, The Hartford confirmed plans to withdraw staff entirely from its 457,396-square-foot Windsor office building at 1 Griffin Road North, reassigning them to its Hartford headquarters. Most of those employees will continue to work remotely or in a hybrid model, but the Hartford office will serve as their new home base. The massive insurer announced it would seek additional tenants to fill vacancies in the 15-year-old Windsor building, or potentially sell the property.

It is also possible that large corporate office buildings could meet the wrecking ball. The Hartford, for example, in 2015 sold its sprawling 172-acre Simsbury campus to New Jersey-based The Silverman Group, which knocked down a former 641,000-square-foot office complex on-site and is transforming the area into mixed-use development.

In 2010 and 2011, Hartford health insurer Aetna closed and then demolished its Middletown campus. That 240-acre property was later acquired by FedEx, which built a sprawling distribution center there on Middle Street.

Towns aim to shore up office market

Patrick McMahon, Windsor’s economic development director, said the north Hartford market has always lagged behind “a little bit” in terms of office space occupancy. He said town staff are reaching out to property owners and trying to analyze the problem, in order to develop a response.

“I think we still have a very strong office market,” McMahon said. “I would like to bolster that.”

Some office buildings have reached 40 years of age and could benefit from modernization, including adding amenities to attract employers and their workers, McMahon said.

East Granby Economic Development Director Sandra Johnson expects further shocks to the office market as companies continue to ponder space needs. Companies have discovered employees can be even more productive working remotely, reducing the need for office costs, she said.

“We have developed a workforce that is really confident now and wants to select how and where they work,” Johnson said.

Johnson noted the region, including East Granby, continues to see robust multifamily and industrial development interest. But towns still want to bolster their flagging office properties to maintain a diverse economic base.

Earlier this year, East Granby officials approved a tax incentives program for long-vacant properties, targeted at office buildings, Johnson said. The town’s economic development commission members are also in the process of reaching out to every business in town by telephone. That makes a good impression and helps gather useful feedback, Johnson said.

Bigger they are, harder they fall

Mike Goman, principal of East Hartford-based real estate advisory firm Goman+York, said the Hartford north area, with its flat and easily buildable land near the airport, attracted giant corporate offices 40 years ago. So, when office reductions happened, the impact was proportionally larger than other areas.

Those 40-year-old offices, designed to accommodate forests of cubicles, no longer fit the elbow-room demanded by today’s employees, Goman said.

Goman recalled one “testing and research” client who asked for a roughly 50-person office design, with 80% of employees in cubicles and 20% in offices. The design was approved in early 2020, as the COVID-pandemic emerged. As final drawings were being completed months later, the client came back and asked to reverse the ratios, wanting a building with 80% of staff in individual offices, Goman said.

“With the labor markets tightening up, companies are looking to keep employees,” Goman said.

Goman said some expect employees to eventually want to return to offices full time, but he believes hybrid and remote working situations are “here to stay.”

“I think it will be two days in and three days out,” Goman said.

Rebecca Nolan, vice president of global business development with the MetroHartford Alliance, said large corporations have been shrinking office footprints for years, having an outsize impact on vacancy rates. That holds especially true for the towns north of Hartford that hosted large complexes, she noted.

“I just don’t see any one occupier taking up a 450,000-square-foot building anymore,” Nolan said. “We have these bigger users and when they change their models, that’s going to significantly impact the vacancy rates.”

Greenberg said he owns 15 to 20 office buildings across the state, several of which are on the market. He considers it the worst asset class to hold now and predicts it will take up to a decade before the market stabilizes due to demolition and conversions of existing buildings.

“One problem when you are looking to sell an asset class that is out of favor [is that] everybody is looking at the same door at the same time,” Greenberg said. “I have some fantastic properties. Most of my developments are tremendous but the plain old office cookie-cutter market is not where I want to be.”