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Recession Showing In Greater Hartford, But So Is Hope

CONNECTICUT PROPERTY LINE

KENNETH R. GOSSELIN

November 18, 2008

There's a new catch phrase in local commercial real estate circles these days: cautious pessimism.

With economists at the University of Connecticut declaring last week that Connecticut has fallen into recession, commercial building owners and industry professionals are bracing for the fallout.

"There's no room for optimism in the face of this economy, but there's a hope that it's not going to be as bad as other downturns have been," said Jonathan K. Putnam, an executive director at the Hartford office of commercial real estate services firm Cushman & Wakefield of Connecticut Inc. "I'd call it cautious pessimism."

Office leasing is a key indicator of a market's economic health and a barometer of business contraction in a recession. It was not until a month or so ago, as the financial services meltdown took hold, that signs of the downturn began to increase, economists say.

Few foresee the soaring office vacancies and tumbling rental rates in Greater Hartford that characterized the two previous recessions.

In 1992, the collapse of banking in New England and downsizing by insurers pushed the region's office vacancy rate to 24.2 percent. In some parts of the region, rental rates neared $30 a square foot and plummeted to below $20. And in 2003, after the dot.com bubble burst, office vacancies peaked at 20.4 percent, according to Cushman & Wakefield.

Today, the region's vacancies stand at 16 percent, a full percentage point below where they were a year ago. Average rental rates for office space in Greater Hartford have held steady, at $19.53 as of Sept. 30, compared with $19.13, according to Cushman & Wakefield.

That was better than conditions in the nation as a whole, where office vacancies increased for the fourth quarter in a row as businesses continued to move out of space.

But certain portions of the Greater Hartford market, including downtown Hartford, are starting to see increases amid a dearth of large leasing deals.

Downtown is already dealing with the addition to the market of more than 350,000 square feet at CityPlace I, now that MetLife has moved to Bloomfield.

The move was not connected to the recession, but it is now adding to the inventory of available space in the city and pushing the vacancy rate for prime space downtown to 19.5 percent, from 12.5 percent at the end of the third quarter.

Other cracks are starting to show. On Friday, the Hartford office of the law firm Thelen said it will close. The firm occupies about 20,000 square feet in CityPlace II.

James Stanulis, a longtime broker at Colliers Dow & Condon in Hartford, said he does not expect vacancies to spiral out of control because companies were more conservative in leasing new space in recent years.

Nevertheless, recent announcements of layoffs by major employers, such as The Hartford and Aetna, are worrisome and could mean more are to come. Economists also forecast far steeper job losses overall for the state than they did just a few months ago.

"We're certainly going to see some tougher times ahead," Stanulis said.

Michael Grunberg, who owns the 280 Trumbull St. tower and 777 Main Street in downtown Hartford, said he does not believe the region's vacancies will top 20 percent this time around, given the high occupancy of some buildings downtown and in the suburbs.