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July 22, 2024 Deal Watch

Windsor’s office market has region’s highest vacancy rate; landlords weigh options, but conversions face headwinds

HBJ PHOTO | STEVE LASCHEVER Landlord and developer Mark Greenberg owns high-vacancy office buildings in Windsor that he wants to convert into apartments.
By Hanna Snyder Gambini

Office landlords in Windsor continue to grapple with some of the state’s highest vacancy rates, prompting some to seek alternate uses for the vast and increasingly obsolete spaces.

According to data from real estate firm CBRE, 59.1% of Windsor’s 3.16 million square feet of office space was vacant at the end of the first quarter of 2024. The town’s 13 Class A office buildings, with 1.9 million square feet, had an eye-popping 75.7% vacancy rate.

That’s an improvement from the second quarter of 2023, when the vacancy rate hit 67.4%, but significantly higher than the 34.7% vacancy rate Windsor recorded in the second quarter of 2019, CBRE data shows.

Comparatively, Greater Hartford’s overall office market, which includes 30.4 million square feet in 320 buildings, had a 23.4% vacancy rate at the end of the first quarter, CBRE data shows.

Property owners and real estate brokers said the challenge lies in Windsor’s vast inventory of office space, particularly large corporate office parks that have fallen out of favor with employers and their workers post-pandemic.

The Windsor market suffered significant setbacks in 2022, when corporate insurance giants Voya and The Hartford put up for sale massive office buildings they owned and significantly reduced their presence in. Both companies cited an embrace of remote work that lessened their need for space.

Voya Financial put its 470,000-square-foot Windsor office building, at 1 Orange Way, up for sale in August 2022, seeking a buyer that would allow it to lease back 85,000 square feet. The building was constructed for Voya (formerly ING) at a cost of $100 million in 2007, according to real estate firm JLL, which has the listing.

Today, the building has an appraised value of $13 million, with the overall property, including land, valued at $20.1 million, according to town records. It remains for sale without an asking price.

In a statement to HBJ, Voya said 98% of its U.S. employees have the opportunity to work remotely.

“While we remain committed to our Windsor site, we continue to explore opportunities to best accommodate our needs,” Voya told HBJ.

In June 2022, The Hartford announced plans to sell or lease its 457,396-square-foot Windsor office building, as it reassigned 500 workers to offices in Hartford. The Hartford’s building was also built in 2007 and sits on 72.9 acres at 1 Griffin Road North. Currently, the building is valued at $13.3 million, and the overall property has an appraised value of $18.8 million, according to town land records.

A spokesperson for The Hartford said the property remains listed “for sale while currently being leased and occupied by tenants.”

Chris Ostop, managing director in JLL’s Hartford office, said large, former corporate headquarters buildings with significant vacancies remain challenged because “there are few companies in the area looking for that much office space.”

Windsor has historically experienced higher vacancy rates compared to other towns due to its significant amount of office park inventory, Ostop said. Windsor is home to about 10.4% of Greater Hartford’s overall office space.

Weighing options

Landlord and developer Mark Greenberg owns several office buildings in Windsor, including 1095 Day Hill Road, 80 Lamberton Road, 10 Griffin Road North and 10 Targeting Centre.

He has redevelopment plans for at least some of his buildings.

The 46,093-square-foot, three-story office building at 10 Targeting Centre is completely vacant.

“It’s been vacant for four years, and it will continue to be vacant. It has no use as an office,” Greenberg said.

His plan is to pair it with a neighboring property at 1 Targeting Centre, where the combined two lots meet the minimum zoning requirements for a residential apartment conversion.

To make that happen, he would have to acquire 1 Targeting Centre, which has a vacant 96,256-square-foot office building, then demolish both buildings and build a new residential complex with as many as 208 apartments, he said.

“It’s the only real play up there,” Greenberg said. “The office campus is a thing of the past, and I don’t see it coming back.”

The 42,170-square-foot office building at 1095 Day Hill Road is currently 30% occupied, but will be completely vacant in February when the last remaining tenants move out, Greenberg said.

He hopes to also gain zoning approval to demolish that building and build a residential development, ideally around 150 market-rate units. The building is near his Day Hill Road sports and entertainment complex, which includes an 82-foot-tall sports dome and Fastpitch Nation softball fields.

Still, Greenberg said residential conversions are expensive, with the cost of demolition, building supplies and borrowing all higher than they were pre-pandemic.

Greenberg’s 162,900-square-foot office building at 80 Lamberton Road is about 50% vacant, after tenant SS&C Technologies Inc. reduced its space by about half, he said.

That building has several tenants with multiyear leases, so Greenberg said he will keep it as office space and search for new tenants.

It’s not all bad news for Greenberg’s Windsor office portfolio. His 32,886-square-foot office property at 995 Day Hill Road is almost fully occupied with long-term leases held by Windsor Federal Bank and IT firm Cooperative Systems.

Bottoming out

Joel M. Grieco is the executive director in the Hartford office of brokerage firm Cushman & Wakefield. He said some office buildings in Windsor, like The Hartford’s 1 Griffin North complex, were originally built for large back-office operations, but those types of roles in particular have embraced hybrid and remote work, allowing companies to downsize or consolidate space.

“Those institutions are exactly the sort of companies that have adopted a lot of work-from-home and hybrid work environments. So, they’ve been able to pull their wings in and consolidate into buildings that they own,” Grieco said.

Converting to residential or other uses is often not practical or cost-effective for the large, deep-set buildings. In that case, owners must get creative about subdividing spaces for smaller tenants, while holding out hope for landing another major employer, experts said.

Grieco said he doesn’t expect vacancy rates to get much worse, “but a turnaround may be slow-going.”

“I think we’ve hit sort of a natural bottom,” he said, adding that companies are now making longer-term real estate decisions after years of temporary pandemic planning.

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