A Wall Street Journal article the other day talked about how REIT’s (Real Estate Investment Trusts) returned more than 13% on average to its investors in 2010 – far outpacing stocks. It further stated that REITS outperformed just about any other asset, except for gold, in 2010, and is expected to continue into 2011. That is certainly good news and a reason for optimism. This gives us reason to believe that the commercial real estate market is starting to gain traction and that the predictions of the “other shoe dropping” are not materializing. Over-all vacancies and rental rates are starting to stabilize in the major markets. Although New Haven County has few REIT owned properties, signs of improvement emerged in the industrial and investment markets over the latter half of 2010….. Brooks & Whittle Limited leased 69,000 SF at 20 Carter Drive in Guilford, which will house their office and warehousing operations……TRU Events, Inc., a creative design and marketing company recently leased 18,000 SF at 14 Commercial Street, Branford……A local developer/investor purchased 1 New Haven Avenue in Milford, a 25,000 SF office building for $2.2M ($88.00/SF) which they intend to convert to a mixed-use property with office and apartments….Pexagon Technology, Inc leased 10,000 SF at 14 Business Park Drive in Branford, and RTI Realty LLC acquired 320 Barnes Road in Wallingford, a 40,000 SF flex building for $2.4M ($60.00/SF).
What can be described as “slow and steady” for New Haven County’s industrial market, the same can also be said for the office leasing market. “Stable” is probably more appropriate. The overall office vacancy rate at the end of year 2010 was 8.9%, compared to 9% at end of 2009. according to CoStar Group, a national commercial real estate information firm. However, as Landlords continue to compete for tenants in all markets; downward pressure on rents resulted in a 3.3% decline in asking rents through 2010 for Class A properties.
With the exception of Anthem Blue Cross & Blue Shield’s announcement that they signed a lease for 218,000 SF and will be moving their North Haven operation to 108 Leigus Road in Wallingford, the market has been dominated by office building sales. Recent transactions include 188 Boston Post Road in Madison, a 11,200 SF property sold for $1.7M or $151.00/SF; 100 South Shore Drive in East Haven, a 48,171 SF building sold for $3.4M or $71.00/.SF; and 59 Elm Street in New Haven, a 112,000 SF office tower sold for $9.7M or $86.61/SF.
Medical practices continued growth in the area resulted in the construction or conversion of existing office properties. A 25,000 SF facility at 84 North Main Street, Branford, was recently completed. Yale announced their intention to convert 6 Devine Street Street, North Haven, into a 114,000 SF medical office facility. Both transactions demonstrate the viability of medical office space.
We continue to be cautiously optimistic about commercial real estate market in New Haven County. Increased industrial activity, including closed transactions and property inquiries, are being reported by the brokerage community. Our only caution is that until un-employment rates start to fall, the office leasing market will probably remain sluggish but stable through 2011 with no real growth or improving vacancy rates. However, recent office building sales activity indicate a positive sign that investors feel that prices have bottomed out. A recent survey of the Association of Foriegn Investors in Real Estate overwhelmingly ranked the U.S as their No. 1, choice for investment this year. Anticipating falling vacancies and value appreciation through rising rents in the years ahead is what may be driving this surge.
Happy Hunting!
FredP
