Despite tenant downsizing and suburban migration, region’s office market likely stable in 2020

John McCormick

In 2019, the Greater Hartford office market saw tenants looking for ways to become more efficient — typically resulting in companies downsizing their square footage.

This trend of maximizing efficiency can be attributed to an increase in overall vacancy rates in the market and is expected to continue into 2020. Large employers will likely continue to consolidate their footprint to owner-occupied campuses as tenants remain focused on cost containment and lease flexibility.

Anna Kocsondy

Despite tenants downsizing, the market will likely continue to be stable in 2020 as there is already solid demand for space from both Hartford and adjacent suburbs.

As a result, office lease rates in suburban Hartford and the central business district (CBD) are expected to remain flat in 2020 with a forecasted absorption of 150,000 square feet to 200,000 square feet. Suburban migration, a recurring trend in Hartford during the past eight years, is also expected to continue well into 2020 as there are already several large pending suburban lease transactions.

Kyle Roberts

On the sales side of the office market, numbers have been increasingly strong over the past few years. As expected, office sales have grown significantly since 2017, when there were eight sales for the year compared to the 18 sales so far in 2019 (through mid-November). A disproportionate share of activity was from the suburban market. Most owners were able to sell at premium or market price based upon the low interest rate environment.

Regional buyers were attracted to steady cash flows from credit tenants. Leasing in the Greater Hartford industrial market is also expected to remain steady, but not necessarily be robust. There is a continued constraint on the availability of quality warehouse and distribution spaces in the market. This will lead to availability and vacancy rates decreasing, which will ultimately drive lease rates up.

As a result, existing tenants with leases expiring soon will likely renew their current leases due to a lack of available options with better quality and/or lower rents. The e-commerce industry will contribute significantly to demand as it drives the need for buildings in the 500,000 square feet to $1 million square feet-plus range. Here are some notable deals from 2019:

Major leases in downtown Hartford:

• Murtha Cullina (25,000 sq. ft.) and a confidential financial services firm (15,000 sq. ft.) both left CityPlace I after long-term (30-plus year) tenancies. Murtha Cullina relocated to the 12th floor at 280 Trumbull, while the financial services firm relocated to Goodwin Square.

• At CityPlace I, four leasing deals were completed (47,000 sq. ft.) to date and one pending (18,000 sq. ft.). Four of these deals are new tenants while Bracewell renewed its lease for five years.

• One Financial Plaza sold to a joint venture between Shelbourne Global and LAZ Parking for $70.5 million ($115 per sq. ft.). Shelbourne continues to be active in downtown Hartford, recently purchasing the south side of Pratt Street for $8 million and the former Allyn Street parking lot for $3.8 million.

• Hartford Square North sold at auction for $16.8 million to a New York-based private equity investor.

Major leases outside of Hartford:

• West: ConnectiCare signed an eight-year lease for 28,000 sq. ft. at 195 Scott Swamp Road, an expansion off its Farmington campus.

• East: Amica relocated to a 30,017 sq. ft. space in 101 East River Drive, East Hartford from Glastonbury.

• South: 500 Enterprise Drive in Rocky Hill dominated Hartford leasing activity: Baker Engineering renewed for 12,000 sq. ft.; COCC signed a new five-year lease for 23,000 sq. ft.; and Acadia renewed for 10,000 sq. ft.

• North: General Electric relocated 107,000 sq. ft. to 200 Great Pond Road in Windsor.

Sales:

• Olymbec out of Canada purchased two office buildings in East Hartford and one in Glastonbury totaling $15.7 million ($61 per sq. ft.). The buildings include a strong mix of regional and national tenants.

• 180 & 200 Glastonbury Blvd., in Glastonbury sold for $30.3 million ($164 per sq. ft.), which is the strongest multi-tenant office asset to come to market since 2016. An affiliate of Simsbury’s Hart Realty Advisers bought the property.

John McCormick is the executive vice president, Anna Kocsondy is vice president, and Kyle Roberts is vice president of commercial brokerage firm CBRE in Hartford.

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