Real estate leaders say office market still struggling as costs soar; urge prudence in uncertain climate

Adam Winstanley, one of Connecticut’s most active real estate developers, warns it’s hard not to lose money in office investments. “If anybody gives you an office building for free, for $1, you will start losing money on the deal,” Winstanley said. “It doesn’t matter where it is.” Winstanley, a principal of Massachusetts-based Winstanley Enterprises, voiced the warning as part of a five-member panel speaking at a real estate event Thursday organized by the Connecticut and Western Massachusetts chapter of the Society of Industrial and Office Realtors. Addressing dozens of brokers and other industry experts gathered at The Farms Country Club in Wallingford, Winstanley noted his company’s definitive shift away from the office sector. Winstanley Enterprises sold most of its office portfolio in 2006 and 2014. Today, it focuses primarily on large industrial and life sciences properties. Its 76,000-square-foot corporate headquarters — the firm’s remaining office asset — is only about half leased. Winstanley cited soaring tenant fit-out costs, noting that build-out allowances averaged about $22 per square foot in 1990 but have surged to between $175 and $250 today — increases that far outpace largely stagnant office rents. Among the 146 deals Winstanley Enterprises has closed over 35 years, office projects produced the lowest returns, he noted. “And that’s the reason we are not in the space anymore,” he said. Other panelists shared a generally dim view of current office market conditions, although some pointed to opportunities in key locations. Steve Inglese, founder of The New Haven Group, said that while he “hates office,” strategic investments can still make sense in high-demand areas such as West Hartford Center. R. David Genovese, founder of Darien-based Baywater Properties, noted one downtown office building he controls in downtown Darien is 80% leased despite minimal marketing thanks to the area’s walkability and amenities. By contrast, Genovese said, one of his Stamford buildings designed for small tenants is performing well, while another that “looks like a Fortune 250 headquarters” struggles. Tenants there demand $100 per square foot for renovations, even as rents hover between $28 and $50 per square foot. “It’s probably the hardest thing I work on every day,” Genovese said. Genovese said his firm budgeted $60 per square foot for office rents for a downtown Darien project, but the latest tenant signed at $76. Moderated by Pullman & Comley Chairman Lee Hoffman, Thursday’s wide-ranging discussion also touched on broader issues shaping Connecticut’s commercial real estate landscape — including the need for stronger energy infrastructure, better transportation networks and more affordable housing to support workforce growth. Panelists emphasized sticking to sound fundamentals amid economic uncertainty. Brian Ker, president of Snowball Developments, said the firm targets underperforming properties in strong industrial corridors — and that Connecticut’s limited trucking routes make it easier to spot prime investment locations. “First and foremost, you have to fall in love with the dirt,” Ker said. “And once you fall in love with the dirt, then you can modify the real estate above it.” Ker added that the spike in interest rates since 2021 has been partially offset by sustained rent growth in the industrial sector, where rents have risen 5% to 10% annually due to tight supply. Inglese said he avoids overextending as a hedge against cost surprises. “I think the previous six or seven years people made a lot of money on real estate not because they operated well but because the interest rates went down,” he said. “I think we are in a period of time now where you have to be a real estate operator as opposed to a speculator that is going to win because of interest rates.”