Chairs on balconies are what Rob Noeldechen looks for on his drives through New Haven, along with strollers, bicycles, plants and other signs of domestic life.
Those items out in view mean someone has moved into one of the shiny new apartment buildings that have sprung up across the city in recent years – and that the multifamily sector remains strong.
“The key to commercial real estate is that your eyes are your best tool,” said Noeldechen, a 34-year veteran of the industry and director of realty firm Marcus & Millichap Capital Corp. in New Haven. Traveling throughout the city, he looks for cars in garages and people on the streets. “When you see activity, when you see people walking with bags in their arms, people are spending money.”
Noeldechen, who secures financing for major commercial projects in the New Haven area, is most heartened by the activity at The Audubon, a new luxury apartment complex on Audubon and Orange streets. Even in the midst of the pandemic early this summer, new tenants were moving into the building, which offer units ranging from $1,965 per month for a 593-square-foot studio to $3,027 a month for an 1,113-square-foot two-bedroom. It’s a sign that new, high-end units are being absorbed into the market.
“What’s unique is that [New Haven] has got the strongest occupancy and absorption in Connecticut,” Noeldechen said, adding that the vacancy rate remained at a low 3.4 percent for multifamily developments in the city going into the summer months, traditionally a slow time. Even with the uncertainty around the pandemic, low interest rates and ongoing demand for investment properties will likely fuel steady activity in New Haven’s commercial real estate market into the fall, Noeldechen said.
Retail woes
The realty sector that is facing the most pressure is retail and it has for years as brick-and-mortar establishments face heightened competition from e-tailers.
“Turnover in retail is nothing new,” said John C. Wareck, co-owner of Wareck D’Ostilio, a large New Haven brokerage with a five-person commercial team. “That’s definitely accelerated recently, and on top of that you have the challenge of businesses being wary and cautious.”
Ever-shifting regulations around safety and health relating to the COVID-19 pandemic are forcing retailers to reduce capacity, add costs and cut hours even as many patrons continue to stay home.
The uncertain environment particularly impacts restaurants, which were forced to reduce seating and may yet face more shutdowns if the virus returns full-force in the fall.
Restaurants along Chapel Street have been especially hard hit by the closure of Yale facilities to most students and staff through the spring and summer. With the potential of more state-mandated shutdowns in the fall, aspiring restaurateurs are holding off on securing storefronts.
“You’re being extremely cautious about jumping on a space and signing a lease,” Wareck said.
Small mom-and-pops are suffering the most, but even national retail chains are faltering. In one case, Old Navy stores across the state are being sued by landlords for back rent and other charges.
Hotels have also suffered devastating drops in bookings with the decimation of tourism and the cancelation of college events region-wide. According to sector analyst Trepp, 19.13 percent of loans backed by hotel properties were more than 30 days delinquent in May, totaling $16 billion nationwide.
Hotel owners will have to wait until the third quarter of 2022 for demand to return to pre-pandemic heights, according to a research report by real-estate giant CBRE.
Escape from New York
One bright spot in retail is financial services thanks to transplants from New York City and Fairfield, Wareck said. In July he helped a Stamford-based company lease a New Haven office and retail space for a fund-management business. The firm had earlier moved to Connecticut from New York but the pandemic sparked a search for space further afield.
“They felt it was a better way to move away from the city and have a better quality of life,” Wareck said. “There’s really a great opportunity for the city of New Haven and the region to capitalize on these feelings of migration, people wanting to leave the denser cities like New York and Boston.”
Office space in particular may see strong demand going into the fall as the pandemic persists, said Dave Melillo, senior commercial associate for Pearce Real Estate and a broker in the space for 25 years. Companies are looking for alternatives to traditional office complexes in big cities but may still need a footprint in the tri-state region. He urges caution, however, considering the still-evolving crisis.
“We still don’t know how this is going to shake out,” Melillo said. “People are working at home but that collaborative aspect, … you don’t have that working at home. You still need to have a physical presence somewhere.”
Many inquiries on office space are coming in from Fairfield and New York but few are willing to make major commitments just yet, he said.
City of industry
Industrial tenants, however, are signing leases across the city, thanks to a scarcity of “clean” space and demand sparked by online retailers and grocery shoppers, Melillo said.
“Businesses in the industrial sector that have survived economic downturns of the last 20 years are doing great,” Melillo said. “They’ve outlasted their competition.”
Giants like Amazon have continued to lease huge industrial spaces in towns around New Haven during the pandemic and more deals are ongoing. Wallingford’s planning and zoning commission approved plans for a second Amazon facility in May, seeking to add an 83,000-square-foot delivery center to its portfolio in the town that includes a sorting center on Research Parkway. The company’s fulfillment center in North Haven continues to add jobs even as another “last-mile” distribution center is planned for Danbury to provide direct delivery to customers’ homes.
With many consumers avoiding trips to the grocery store, cold-storage facilities present another opportunity for developers and investors. Even before the pandemic, an additional 75 million to 100 million square feet of cold storage warehouse capacity was needed nationwide to meet the demand fueled by online grocery shoppers, according to another report by CBRE.
Bullish for biotech
Another industry poised to continue expanding in New Haven is biotechnology, with steady demand for new space throughout the lockdown, according to industry experts. With hopes of a continued strong market for biotech tenants, New Haven’s board of alders in July approved Carter Winstanley’s plan for a $100-million biotech research building at 101 College St., to feature 500,000 square feet of labs and incubator space in a 10-story structure.
Spinoffs from Yale’s research efforts continue to seek incubator and lab space and demand remains high for properties in locations in downtown close to the university and Yale New Haven Hospital, Melillo said.
“Space is tight; it’s hard to find,” he said. “These companies want to be in New Haven proper.”
The expanding presence of Yale and the area’s other universities continues to stoke demand for investment across a range of commercial real estate properties, said Noeldechen of Marcus & Millichap. He still hopes that 2020 will be a record-breaking year for deals despite the disruption caused by the pandemic. He has seen multiple recessions in his career and major catastrophes like the credit crisis, but he remains optimistic.
“It’s not the end, the best is yet to come,” Noeldechen said.
