Experts expect the pandemic-induced embrace of remote work to continue to weigh down the office market in 2025, but some see reason to hope this trajectory could change.Philip Gagnon, a principal with real estate services firm Colliers in Hartford, in November helped broker a $4.7 million sale of a 38,206-square-foot Cromwell office building to the […]
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Experts expect the pandemic-induced embrace of remote work to continue to weigh down the office market in 2025, but some see reason to hope this trajectory could change.
Philip Gagnon, a principal with real estate services firm Colliers in Hartford, in November helped broker a $4.7 million sale of a 38,206-square-foot Cromwell office building to the Connecticut Water Co., which will use the property as a new operations center. That $124-per-square-foot transaction was one of the top sales of the past quarter.
So, there are deals to be made.
Gagnon said he believes the struggling office market has found its bottom and isn’t going to sink further. Also, the Greater Hartford area has seen a significant amount of demolition and conversion of former office properties, chipping away at the surplus of unneeded space, he said.
Landlords, Gagnon added, are increasingly unwilling to give away the store when it comes to tenant improvement allowances, which has helped level off leasing rates. He is also optimistic about a growing appetite on the part of employers to pull back on policies that allow remote work.
“Quite frankly, it’s a pretty positive outlook we have,” Gagnon said. “Will that come true? Only time will tell.”
John Cafasso, another Colliers principal, doesn’t see any factors yet in play to pull the office market out of its post-pandemic doldrums. But, like Gagnon, he sees some reason for hope. The best sales will be to new owners who have use for space, rather than to investors, he noted.
“If you have a building with a lot of good attributes and good highway access, you will be able to get a good price from a user,” Cafasso said. “If you don’t have a tenant and don’t have the right attributes, the building will suffer, and you will see its value plummet.”
Cafasso expects leasing activity to remain flat in Connecticut heading into 2025. Some tenants will continue to exercise options to downsize, while others will move to higher-quality spaces at renewal time.
‘Ongoing work’
Shelbourne Global Solutions — downtown Hartford’s largest commercial landlord — has seen its office portfolio significantly impacted by post-pandemic tenant downsizing. The Brooklyn, New York-based company said office vacancy rates in Hartford are effectively around 40%.
Shelbourne is fighting an attempted foreclosure of its 23-story “Stilts Building” and 12-story “Metro Center” office towers in downtown Hartford. Meanwhile, the company continues to invest in downtown multifamily developments.
Shelbourne leadership, in an email response to questions, said local and state government intervention will be needed in the coming year to incentivize conversion of at least 1 million square feet of office space in the city to apartments.
The coming year, much like 2024, will continue to see owners attempt to reset debt on office properties to “realistic numbers,” reflective of national real estate trends, Shelbourne contends.
Shelbourne took more than 300,000 square feet of office space off the downtown Hartford market when it bought the office-and-retail complex at 242 Trumbull St. in 2023.
Shelbourne has teamed up with prolific Hartford investor Alan Lazowski and Hartford-based Lexington Partners to redevelop the complex, starting with conversion of a roughly 86,000-square-foot annex building on Pratt Street into dormitory space for about 200 UConn students.
“We have been successful in bringing several new companies to the downtown, but there are still millions of square feet (of office space) in this market available that need to be leased,” Shelbourne said.
Shelbourne said it will play a big role in this year’s office market, at least in downtown Hartford.
“… Our ongoing work at redeveloping and adding more residential units to the (central business district), along with our continued efforts at bringing more retail to the downtown core, all contribute greatly to making downtown Hartford a more competitive, attractive and successful location for growing companies to want to do business in,” Shelbourne said.
