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December 28, 2020 Economic Forecast

COVID-19 weighs on Greater Hartford’s commercial real estate market

HBJ Photo | Joe Cooper Two former Morgan Stanley investment advisors have opened a new firm in Downtown Hartford's CityPlace (right) office tower.
By Evan Carlson, Research Data Analyst, CBRE

The Greater Hartford office market opened the first quarter of 2020 with more than 220,000 square feet of positive absorption, welcome news for a market that saw over 250,000 square feet of Class A negative absorption in 2019.

In March, the COVID-19 pandemic hit the United States, abruptly freezing market activity.

Sales and leasing transactions in process continued to fruition with little interruption as stakeholders on all sides attempted to keep business as usual amidst the uncertainty of COVID-19. In the summer months, landlords and tenants became increasingly more creative under the unprecedented global market disruption.

Tenants considering big moves focused on work-from-home strategies and a reevaluation of space needs. Landlords began offering attractive tenant improvement packages and lease terms with additional rent concessions. They also revised price offerings, resulting in downward pressure on average asking rental rates, which continue to soften into year-end.

As CBRE forecast last year, sales volume and pricing returned to 2018 levels with 13 sales in the Hartford market through mid-November for approximately $92 million. Almost half of the buildings sold were vacant, or to be vacant, decreasing the sales price per square foot from 2018.

The Hartford industrial market has proven resistant to COVID-19 uncertainty as strong demand, limited supply and access to quality labor define the market. The e-commerce industry has boosted demand for buildings in the 500,000 to 1 million-square-foot or more range. Greater Hartford’s access to more than 23.5 million people in a 200-mile drive has increased demand for “last mile” facilities. Limited inventory has caused a rise in rental rates, allowing new construction to become feasible.

The COVID-19 commercial real estate trends being experienced throughout the country are no different in Greater Hartford. Corporate real estate strategies — particularly long-range planning — are being impacted, compounded by uncertainty about jobs in Connecticut.

Continued work-from-home mandates pose challenges for landlords and tenants, with a likely 10% to 15% impact on space needs for large employers post-vaccine. Most Hartford-based large employers are waiting until mid-2021 to mobilize their workforces, adopting a “better to be safe than first” mentality.

COVID-19 will impact leasing transactions into 2021 as we see many tenants defaulting to short-term renewals, limiting the number of tours and leasing opportunities.

Notable 2020 transactions

Downtown Hartford leasing highlights:

CAP Specialty and RMS signed long-term leases at CityPlace I and Goodwin Square, respectively.

55 Elm St. was the only major sale in downtown Hartford, purchased by Spinnaker Properties, with plans to convert to multifamily residential.

Sales:

5 Farm Springs Road in Farmington sold by Raytheon Technologies to Otis Worldwide Corp. for $5.7 million, or $93 per square foot — Otis occupied the building, part of the sale of UTC to Raytheon and Otis split.

30 Batterson Park Road in Farmington sold by an affiliate of Konover Investments to Avon-based MJ Fish Properties for $6.25 million, or $81 per square foot.

Brooks Brothers sold its industrial and office buildings in Enfield to Simon Property Group, one of the largest retail REITs in the country and the largest mall operator in the U.S. A 170,000-square-foot office building at 100 Phoenix Ave. sold for $41 per square foot, or $7 million.

96% occupied Branford Business Center was purchased by Benerofe Properties for $13 million, or $91 per square foot. It’s a five-building flex industrial/lab/R&D/medical office complex.

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