December 22, 2014
Economic Forecast

Hartford office market tightens; investor activity rising

PHOTO | Steve Laschever
PHOTO | Steve Laschever
Giulia Wakim

The Greater Hartford office market continued to strengthen in 2014 with declining vacancy rates, as current and new tenants absorbed more space. Leasing activity heated up in the third quarter with over 97,000 square feet of available space becoming occupied, representing the fourth consecutive quarter of positive gains. This pushed the vacancy rate down to 16.3 percent, which is the tightest the Greater Hartford office market has been in the past five years.

While fourth quarter projections show leasing activity cooling down, investment sales activity remains strong.

Investment sales activity has been prevalent in 2014 and will continue to play a major role in the Greater Hartford office market. Notable transactions include the sale of City Place II, which sold in late August for $20.6 million, and the $45 million recapitalization of 20 Church St.

In mid-August, Constitution Plaza, a six-building mixed-use office and retail development, was placed on the market. The area surrounding Constitution Plaza is active with redevelopment. The former Sonesta Hotel is being converted into upscale apartments and approximately 2,500 state employees are expected to move into Connecticut River Plaza, which the state purchased in 2013. In early December, Trinity College committed $2.025 million to purchase 200 Constitution Plaza, a five-story, 135,000 square-foot building.

The suburban office market also experienced robust activity this past year with over 10 office sales to date, with more expected to close by year-end. Suburban properties that finalized sales in the latter part of 2014 included 1690 New Britain Ave., a fully-occupied, 165,000-square-foot building in Farmington, and 20 Batterson Park Road, a fully-occupied, 40,000-square-foot building in Farmington.

Investors from near and far are starting to take note of Hartford's strengthening market as it continues to be a lower-cost investment than surrounding markets such as Boston and New York.

In recent years, numerous colleges have added downtown footprints, increasing the number of Millennials in the center city. The University of St. Joseph and Capital Community College are both currently operating downtown, while UConn is redeveloping the former Hartford Times Building, moving its West Hartford campus to Prospect Street in 2017. Trinity's recent commitment to 200 Constitution Plaza demonstrates the trend of higher education wanting to be part of an urban community, allowing students greater opportunities for internships and possible job placements upon graduation.

According to the U.S. Bureau of Labor Statistics, by 2030 Millennials (born between 1980 and 2000) will make up 75 percent of the workforce. A study conducted by the Urban Land Institute shows that Millennials typically seek to live, work and play in proximity. The live, work, play environment is becoming increasingly more prevalent in the central business district as demonstrated with the continued conversion of office buildings into market-rate apartments, such as at 777 Main St. This trend is further illustrated in downtown Hartford's North End; branded as "DoNo", the planned $350 million redevelopment includes over 300 residential apartments, a grocery store, brewery and a 9,000-seat stadium.

Amenity-rich submarkets that provide the live, work, play culture continue to thrive. West Hartford Center and the Somerset Square area of Glastonbury demand top-dollar rents, upwards of $26 per square foot and are the most desirable areas for suburban tenants. However, due to the high demand coupled with the lack of available space, many suburban tenants are starting to turn to downtown Hartford.

We have seen many examples of this trend. Recently, CPA firms have zoned in on the central business district, relocating from tightening suburban markets. In November, CohnReznick consolidated their Glastonbury and Farmington offices and occupied 50,000 square feet at 350 Church St., relocating 200 employees to Hartford.

The Greater Hartford market will continue to stabilize, and we will look for continued urbanization efforts among suburban tenants looking to reinvigorate their corporate cultures and to capture the growing cohort of Millennial employees who would rather work in an urban setting.

Overall, we continue to be encouraged by the activity we see in the market today as we move into 2015. Both downtown Hartford and the suburban markets are on track for moderate growth, fueled by both private and public sectors.

Giulia Wakim is a Hartford research analyst for CBRE/New England.

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