The Great Recession wreaked economic havoc on downtown Hartford. Will COVID-19 do the same?

Photo | HBJ File Downtown Hartford's skyline.

V’s Trattoria owner Rob Maffucci said he no longer uses food-delivery apps operated by large companies.

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By Joe Cooper and Greg Bordonaro

The 2008 financial crisis and ensuing nearly two-year recession wreaked havoc on downtown Harford’s commercial real estate scene, which at the time was just starting to show signs of life.

Downtown’s office vacancy rate skyrocketed to 25%, the city’s unemployment rate peaked at 16% and venerable institutions like the Goodwin Hotel shuttered.

About a decade later the coronavirus pandemic is threatening another early rebirth in the Capital City, which has added nearly 1,500 apartments and new entertainment venues and employers in recent years, including Dunkin’ Donuts Park, Infosys and Stanley Black & Decker, among others.

The essential shut down of many parts of the state’s economy to prevent the spread of COVID-19 raises the obvious question: Is Hartford headed toward another major downswing?

Many local real estate and economic development experts say it’s too early to determine the long-term economic impact, but they remain hopeful that this slowdown, which is different from any past recession, won’t be as harmful to Hartford, particularly downtown.

However, there are still many unknowns.

Retail storefronts and hospitality and entertainment venues are likely to take a beating — already downtown’s 116-room Homewood Suites by Hilton hotel and Hanging Hills Brewery announced they will permanently close their doors.

Meanwhile, multifamily properties could see a leasing slowdown, while office space may remain stable short term, although more tenants may be reluctant to sign long-term leases or expand, given the uncertainty, experts say.

If companies find work-from-home is effective, they could consider downsizing office space longer term.

“The longer this goes on, the more harmful it will be to the real estate market,” said Donald Poland, managing director of urban planning at East Hartford real estate advisory firm Goman+York Property Advisors LLC. “It’s hard to make investment decisions … right now and the longer that continues the more detrimental it will be.”

HBJ Photo | Joe Cooper

Trumbull Street in downtown Hartford looks empty on a recent weekday morning in March, as many businesses have been ordered to close their doors to stem the spread of the coronavirus.

Poland said Hartford’s commercial market may be more subject to negative outcomes from the COVID-19 outbreak compared to Boston, for example, because there are already fewer jobs and less population and development growth here.

However, downtown commercial space’s saving grace could ultimately be that many of the center city’s largest corporate tenants — including health care, insurance and IT firms — are being less impacted by the crisis economically, at least right now, and operate in high-demand industries.

“From a downtown commercial space perspective, we may be in a bit of a better position based on who our large corporations and occupants are,” Poland said.

Office leasing impact

Amid uncertainty in the financial markets, area real estate executives predict there will be a disruption in office lease negotiations, at least in the coming months.

Christopher Ostop, Managing Director/Broker, Jones Lang LaSalle LLC (JLL)

That’s especially true for small businesses that were looking to expand or extend a lease before the coronavirus outbreak, according to Christopher Ostop, a managing director/broker of Jones Lang LaSalle LLC (JLL).

Ostop said larger tenants could also look to delay a long-term decision by opting for a short-term lease until the national economy is steady again.

“Hopefully the light switch just gets turned back on and we all say ‘this wasn’t as bad as I thought, let’s get back to work,’ ” Ostop said. “The good news is that financial markets were hugely strong right before we went into this. That wasn’t the case in 2008.”

Jon Putnam, Executive Director, Cushman & Wakefield

Jonathan Putnam, executive director of commercial real estate broker Cushman & Wakefield Inc.’s Hartford office, said he also expects prospective tenants to be more cautious about making those “hard decisions.”

The health crisis, he says, will also force more companies to review their ability to allow telework. But that will only continue a trend where more employers are offering telecommuting and additional flex workstations.

“We are all going to feel an impact, it’s just a question of how much and how long it takes to shake itself out,” Putnam said.

Greater Hartford’s Class A office market is already coming off a weak 2019. In fact, Hartford and nearby suburbs collectively saw tenants shed a net 535,000 square feet of space last year, according to realty broker-advisor CBRE.

Downtown Hartford’s Class A office vacancy rate also climbed slightly to 18.7%, as tenants shed a net 170,000 square feet.

Prudential and Travelers Cos. both shed space downtown last year increasing the vacancy rate, which was further impacted by mergers and acquisitions and more companies adopting agile work environments that fit more people into less space.

However, the hope was 2020 would be a better year, as up to eight companies were in talks to lease about 245,000 square feet downtown during the first half of this year. The state’s “Stay Safe, Stay Home” campaign to mitigate the spread of COVID-19 has altered those expectations.

“The question is, how much damage has been done between when we started the shut downs to when we come out of it?,” Putnam said. “It’s just impossible to know.”

Luckily, a few significant leases were recently completed, including Hartford HealthCare signing for 80,000 square feet at 100 Pearl St., where it will relocate 400 employees and hire 300 more as part of a major expansion, and IT services firm GalaxE.Solutions Inc. leasing 24,000 square feet at City Place I.

HBJ Photo | Joe Cooper

Downtown retailer Jody Morneault’s Stackpole Moore Tryon has pivoted to online sales since the pandemic.

A final blow to retail?

Downtown’s already lagging retail sector faces the largest potential fallout from the pandemic, brokers and economic development officials agree.

Morneault’s Stackpole Moore Tryon, a longtime retail fixture at the corner of Pratt and Trumbull streets, on March 20 became one of the first retailers downtown to voluntarily close its doors during what it described online as an “unprecedented” crisis.

A sign on the men’s and women’s clothing store says the business will reopen “when the viral emergency is over,” but nationwide calls for “social distancing” could be enforced through the entire spring shopping season, state and national health officials say.

That means retailers will need to survive on cash reserves and e-commerce sales for now. The state did roll out a no-interest loan program of up to $75,000 for small businesses hit by the crisis, but it was swamped by more than 4,000 applications within a day or so.

Michael Freimuth, Executive Director, Capital Region Development Authority (CRDA)

“Retail has been struggling forever with all of the changes in the economy, this may be something that pushes it to a whole new dimension,” said Michael Freimuth, executive director of the quasi-public Capital Region Development Authority, whose agency is providing a $20-million subsidy for a $100-million mixed-use project to transform Hartford’s Pratt Street retail corridor into a vibrant neighborhood.

Freimuth said that project could be slowed.

“There was a drifting toward entertainment experience, the socialization of retail — this is a shock to that thinking,” he said.

Restaurants and hotels are also experiencing significant revenue shortfalls because of mass closings, Freimuth and others say.

One national hotel expert from the American Hotel and Lodging Association recently estimated a year-long occupancy rate of about 30%. On Asylum Street, Homewood Suites decided to close permanently because ownership thought it made little sense to stay open amid declining occupancy and no clear end-date to widespread quarantines.

Hotel occupancy in Greater Hartford before the crisis typically hovered around 60%, just shy of national averages, according to market data firm STR. Occupancies in downtown Hartford have dropped to as low as 15% in recent weeks, Freimuth said.

Meantime, the restaurant/bar industry, which generated $8.9 billion in gross sales last year, has been forced to close dine-in service until further notice and is asking for state tax relief and loans to stay afloat.

At V’s Trattoria and Vito’s To Go Cafe at 280 Trumbull St. downtown, revenues are down about 90%, owner Rob Maffucci said. Together the two locations usually pull in about $40,000 per week, but since moving to takeout only in recent weeks, the restaurants do between $100 and $500 per day; normally they do about $1,000 in daily takeout.

But Maffucci, who has been a fixture in downtown Hartford’s restaurant scene for about three decades, is cautiously optimistic that the state and federal governments will provide the industry with a sufficient bailout. Restaurants work on razor-thin margins and shut down in a show of cooperation and good faith, Maffucci said.

“We had to lay off most of our staff, and we’re hoping that the government has a good plan to maintain payroll, otherwise it would be bleak,” Maffucci said.

Photos | HBJ File

Some economic development officials, including David Griggs (left) from the MetroHartford Alliance and Mike Freimuth (center) of the Capital Region Development Authority, say they are hopeful Hartford will rebound from the current crisis quickly.

The case for optimism

At least one reason for optimism is that Hartford is not alone in the coronavirus pandemic, according to MetroHartford Alliance CEO David Griggs.

Small businesses nationwide are set to share $350 billion in funding from a $2-trillion federal stimulus package known as the CARES Act, which will be a lifeline to many small businesses and self-employed workers. Also, in addition to bridge loans provided by the state of Connecticut, small businesses in-state are eligible for federal Small Business Administration (SBA) loans of up to $2 million.

Griggs said MetroHartford Alliance, which promotes economic development in Greater Hartford, is working with companies to help them access funding provided by the state and SBA to lessen the blow to Connecticut’s economy.

“In some regard it seems very possible that some businesses that were walking a very thin margin might not come out of this in a good way,” he said. “I think that’s anticipated and why the federal and state governments are doing everything they can to get cash into the companies that need it most.”

Griggs also said Lamont’s office is doing “an awesome job” of communicating with the business community about what it needs to survive the economic fallout from social distancing. That will sustain Hartford’s recent momentum.

“The city has been on an excellent trajectory as of late … and we want to do everything we can to make sure we bounce back quickly at the end of this,” he said.

Sean Teehan contributed to this story

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