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October 28, 2024 Deal Watch

Urban ‘flight-to-quality’ trend continues as companies seek out more vibrant office settings

HBJ PHOTO | BRIAN AMBROSE A panel discusses the current state of Connecticut’s office market at HBJ’s recent real estate event. The panelists included (from left) developer and landlord Mark Greenberg, Chris Ostop, managing director of JLL Connecticut, and John McCormick, executive vice president at CBRE.
By Hanna Snyder Gambini

Companies migrating from the suburbs to downtown Hartford remains an active trend, real estate experts said, despite an overall slow leasing environment that has significantly elevated office vacancy rates.

The latest organization to make the move was the Connecticut Association of Realtors, which recently relocated its 13 employees into a 9,700-square-foot space at 90 State House Square, in downtown Hartford. The group moved from an East Hartford office building, at 111 Founders Plaza, that is slated for redevelopment.

CT Realtors, a trade group that advocates on behalf of real estate agents in Connecticut, was attracted to the city’s central business district due to its proximity to the state Capitol and access to on-site parking, said Kristi Olds, the organization’s communications director.

Other companies have recently made similar moves, including environmental engineering firm Fuss & O’Neill, which this year relocated from Manchester to downtown Hartford’s Gold Building, where it occupies about 25,000 square feet of space.

National law firm Gordon Rees and CARMAC, the corporate office of Enterprise Rent-A-Car, also moved this year to the Gold Building, relocating from Glastonbury and Windsor Locks, respectively.

Other suburban companies that migrated to Hartford in recent years include PES Structural Engineers and insurers Talcott Resolution, Selective Insurance and SunLife Financial.

The urban migration trend was one of many topics discussed at Hartford Business Journal’s second annual “Cranes & Scaffolds: Building Connecticut’s Future” real estate event, which took place Oct. 9 at the Aqua Turf Club in the Plantsville section of Southington.

John McCormick, an executive vice president at real estate services firm CBRE in Hartford, participated in an office market panel discussion. He said, on average, about 75,000 square feet of downtown Hartford office space has been leased annually over the last decade by tenants that moved from the suburbs.

It’s a trend that has been spurred by an increasing number of companies seeking out higher-quality and amenitized buildings in walkable downtowns. That “flight to quality and amenity-rich spaces” has become even more important post-pandemic, McCormick said, as employers try to entice workers back to the office.

Companies want to be in buildings that offer, or are near, modern food courts, fitness centers, restaurants and cafes, he said.

Decades-long efforts to add more amenities in Hartford — like Dunkin’ Park, the Front Street Entertainment District, new apartments and restaurants — have made the city more attractive, McCormick said.

Hartford also offers a discount compared to more competitive office markets in West Hartford and Glastonbury.

Lease rates for space in West Hartford Center, for example, average $40 to $45 per square foot, whereas in downtown Hartford, it’s closer to $21 to $25 per square foot, McCormick said.

‘Cultural miss’

Yet, despite several high-profile moves, Hartford still has a stubbornly high vacancy rate.

Just how high depends on who you ask. CBRE put the downtown Hartford office vacancy rate for Class A buildings at 26.7% at the end of the third quarter, while real estate firm Cushman & Wakefield calculated an overall downtown Hartford office vacancy rate of 35% at the end of the second quarter.

Other landlords have said the true downtown office vacancy rate is closer to 40%, when soon-to-expire leases are taken into consideration.

The office market nationally has taken a beating since the 2020 COVID-19 pandemic, which led to the wider adoption of remote work, giving companies an incentive to downsize their office footprints.

However, employers are increasingly mandating workers to return to the office for at least part of the week. That’s led to some increased leasing activity.

For example, besides the Realtors Association, downtown Hartford recorded several other significant lease deals during the third quarter of this year. Law firm Pullman & Comley and the city of Hartford renewed leases at 90 State House Square and 280 Trumbull St., respectively, while law firm Jackson Lewis moved from 90 State House Square to 10 State House Square, according to CBRE.

For the first time since 2018, Hartford recorded back-to-back quarters of positive absorption in 2024, meaning office tenants collectively added more space than they gave up. Overall, Hartford County has recorded 103,000 square feet of positive office space absorption through the first three quarters of 2024, according to CBRE.

That’s lowered the region’s office vacancy rate to about 23.1%.

McCormick said many companies have embraced hybrid models that encourage employees to be in the office for at least three days a week.

“Tuesdays, Wednesdays and Thursdays, we’re seeing average occupancies in the 75% range. Mondays and Fridays are still probably half that percentage,” he said. “But people are recognizing that there’s a cultural miss of not coming into the office, and not having an interaction. And I think it’s added to us being a little bit busier, representing owners and tenants in the office space sector.”

Frank Amodio, a broker for Amodio & Co Real Estate, represented the Connecticut Association of Realtors in its recent downtown Hartford lease deal. He said recent conversions, or planned conversions of office space to apartments have taken some inventory off the books, but there’s still a healthy amount of space from which to choose.

Amodio said he is working with several other businesses looking to move into downtown Hartford.

“I think the demand will continue to grow,” Amodio said. “I’m seeing weekly, monthly, other companies coming forward, changing their return-to-office status, and so we’re really seeing an increase in demand. People are looking for locations where there are opportunities to go out and eat, to socialize, walk around, have easy access to mass transit, and that’s more than you’d get in a freestanding office building or corporate park.”

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