The Greater Hartford office market continued its recovery during 2013 posting gains in overall net absorption and declining availability rates. Increased activity came from the area's traditional major employers as well as the next tier of growth players, which have been increasing their impact and influence on the overall market.
Although fourth quarter numbers weren't available at press time, the city of Hartford and the four surrounding suburban submarkets are expected to see a net increase in occupied office space in 2013. That positive absorption rate signals that the office market's overall health is improving. The office vacancy rate is also expected to decline.
The moves we see in the market today are for a variety of reasons. First, some corporations that have deferred long term occupancy plans are now more comfortable committing longer term. Second, nearly all tenants in the market are looking for opportunities to do more with less. And finally, some users are completely rethinking real estate altogether from a location, design, and use standpoint that often makes a move a necessity – more often than not to less space.
Now more than ever, corporate real estate managers and "C-suite" leaders are paying more attention to space utilization within their organizations.
Nationally, according to CBRE's Workplace Strategy Group, office space has only a 50 percent utilization rate at any given time during the business day.
Moreover, an ongoing demographic shift will mean more echo boomers (those born between 1982 and 2000) entering the workforce. According to the Bureau of Labor Statistics, echo boomers who made up 14 percent of the U.S. workforce in 2010, will grow to 33 percent of the workforce by 2020.
These workers are technologically savvy, mobile, collaborative, and seek flexibility in when, where, and how they work.
Many corporate users are responding to this demographic change by taking advantage of opportunities to create more open, collaborative, and "untethered" or "free address" work spaces absent of private offices or assigned seats. These initiatives will drive efficiency with space requirements; create multiple uses for the same space; and reduce the average square foot per worker. A CoreNet survey forecasts the average square foot per worker will drop from 225 square feet per worker in 2010 to 151 square feet per worker in 2017.
In the Hartford market, we've seen many examples of this trend. At One Financial Plaza, Accenture, an early adopter of the new workplace strategy, reduced its footprint from a full 23,000 square foot floor to 8,600 square feet. In Rocky Hill, Zurich Insurance will contract from 34,000 square feet to 21,000 square feet at 500 Enterprise Drive as part of its "Dynamic Workplace" initiative.
On a larger scale, both United Technologies Corp. and Travelers Cos. made moves as well – again to drive efficiency and modify space utilization while at the same time accommodating growth.
In Farmington, UTC has "restacked" and expanded its headcount. During 2013, UTC restructured a 70,000 square-foot lease at 9 Farm Springs Road, where it opened a UTC Leadership Center, and offices at 8 Farm Springs Road where it leased 108,000 square feet in 2012.
Many of these United Technologies employees were relocated from Hartford at One Financial Plaza, also known as The Gold Building, where UTC still maintains its headquarters.
UTC's shift created an opportunity for Travelers, which has increased headcount in Hartford. During 2013, Travelers committed to nearly 140,000 square feet of space in the central business district (CBD) with two expansion leases totaling 75,000 square feet at One Financial Plaza and a third lease for 62,000 square feet at One American Row.
Another component of the demographic shift that we are seeing on a national basis is the increasing desire among echo boomers and Generation X workers to live and work in urban areas. In Hartford, we've seen an increasing number of suburban tenants strongly consider the CBD.
At one point during 2013, there were nearly 100,000 square feet of active requirements in the CBD from tenants coming in from either the suburbs or the outskirts of downtown.
Just recently, law firm Jorden Burt (soon to be known as Carlton Fields Jorden Burt) signed a lease for 15,000 square feet at One State St. and will relocate from Simsbury.
CM Smith Agency signed a lease for 8,000 square feet at 100 Pearl St. and relocated from Glastonbury. Microsoft Corp. will relocate a longstanding Farmington office to 8,000 square feet at 280 Trumbull St., and accounting firm Whittlesey & Hadley will come back to the CBD after a 26-year hiatus in the south-end to occupy 25,000 square feet at 280 Trumbull St.
With ongoing initiatives to make Hartford more of a "live, work and play" environment we believe that this trend can continue, albeit on a relatively small scale.
Another factor that will support this trend is the lack of desirable office supply in the top performing suburbs. West Hartford Center and the Somerset Square market of Glastonbury currently enjoy low-single digit availability rates of approximately 4 to 6 percent. Historically, when these amenity-rich areas are tight, amenity seeking tenants turn to the CBD.
In general we continue to be encouraged by the activity we see in the market today as we roll into 2014. Both the CBD and suburban markets are poised for moderate growth as a number of users are still considering alternatives.
Relocations will be largely predicated on opportunistic tenants seeking a "flight to quality," or to drive efficiency within their space portfolio versus making lateral moves. Absent a compelling reason to move, tenants will be more likely to renew leases versus relocate to what many perceive as a multitude of commodity space options throughout the market.
Statistically, this is expected to play out with moderate positive absorption and downward pressure on overall availability rates for 2014. Average rents are expected to be stable in the coming year, or experience slight increases in areas of short supply. ¦
Michael Puzzo is a first vice president and partner in the Hartford office of CBRE New England.