Q&A talks with Gary Schless, first vice president of commercial real estate brokerage firm CBRE/New England in Hartford, about the state of Greater Hartford’s office market.
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Q&A talks with Gary Schless, first vice president of commercial real estate brokerage firm CBRE/New England in Hartford, about the state of Greater Hartford's office market.
Q. We're at the mid-year point. How has Greater Hartford's office market fared through the first six months of 2018? What about the downtown Hartford office market?
A. The Greater Hartford office market has been a bit sluggish through the first half of the year. Overall, tenants ceded 184,000 square feet of office space during the first half of the year, and 172,000 square feet was vacated during the first quarter.
The downtown Hartford office market fared better, showing slightly positive absorption in the first half of the year.
Q. Is there a Greater Hartford suburban market that's hot right now? Which is showing signs of weakness?
A. As is par for the course, Glastonbury and West Hartford continue to be the most desired locations for office space. For tenants in the 10,000- to 20,000-square-foot range, there are few options in these towns, and tenants are often forced to expand their search into neighboring towns. Windsor and East Hartford have the highest vacancy rates. These towns have had full building users vacate, leaving large blocks of space available. Both currently have vacancy rates in the mid-30 percent range.
Q. Many employers have been downsizing their footprints in recent years due to technological and other advancements that reduce the need for office space. Is that trend still prevalent? What other factors are impacting employers' office-space decisions?
A. A few years ago, with technological advances, employers had more people work from home. More recently, companies have been cutting back on their telecommuting programs. Companies are looking for more interaction and collaboration among employees, which has led to fitting more people in smaller office footprints, removing private offices and creating open floor plans with smaller cubicles.
We are also seeing more hoteling concepts, where employees no longer have an assigned seat, but come in each day and find a cubicle to work from. Knowing not every employee will be in the office every day, companies are able to have fewer cubicles, and hence lease less square footage.
Another large trend in the market is that landlords are creating more amenities to try to attract and retain tenants. Amenities include fitness centers, common conference facilities, cafeterias, etc. For example, 1 Waterside Crossing in Windsor is installing a sports facility for its tenants, which will include a basketball court, volleyball court and paddle court.
Q. Can you share any major leases that took place during the first half of 2018?
A. A few major leases took place in downtown Hartford in the first half of 2018. Virtus Investment Partners signed a lease for about 65,000 square feet at One Financial Plaza (the 'Gold Building'), including the top two floors that once served as United Technologies Corp.'s corporate offices. They will be relocating from 100 Pearl St. Also, the accounting and consulting firm PwC renewed its lease for about 46,000 square feet at CityPlace I.
Q. What are you seeing in terms of rents? Is it a landlord's or renter's market?
A. Rental rates remained relatively flat in the Greater Hartford office market during the past couple of years. There are certainly exceptions — such as Glastonbury and West Hartford — where space is at a premium, and rental rates have ticked upwards. The past five to 10 years have undoubtedly been a tenant's market. Tenants have been able to negotiate lower rental rates, more free rent and other concessions. While I would say it is still a tenant's market, tenants aren't able to get quite the same concessions they could a couple of years ago.
Q. What about office building sales? How is that market shaping up?
A. The office building sales front was fairly active the first half of the year. Some notable assets that sold were 100 Northfield Drive (116,000 square feet) in Windsor; 8 Farm Springs Road (107,000 square feet) in Farmington; and 200 Constitution Plaza (130,000 square feet) in Hartford.
Q. What do you expect the second half of the year to bring to the Greater Hartford office market?
A. I expect the Greater Hartford office market to bounce back after a sluggish first half. There are a lot of positive signs for the region. One of the biggest is Infosys' announcement that it will open a technology and innovation hub in Hartford and hire 1,000 workers in the state by 2022. Additionally, Seven Stars Cloud Group Inc. announced that it will establish a global headquarters for technology and innovation called Chain Valley on the former UConn campus in West Hartford. This is expected to create 330 jobs over the next five years. I am not sure that we will be able to recoup the negative absorption from the first half of the year, but I believe we will certainly see positive absorption for the reminder of the year.
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