February 5, 2018

Greater Hartford’s northern office market struggles to land, keep tenants

HBJ File Photo
HBJ File Photo
Windsor’s Addison Corporate Center, 175 Addison Road, and other office buildings are rebuilding occupancy.

Last year was unkind to some of the landlords with office buildings occupying a broad swath of commercial acreage north of Hartford.

Of the four suburban commercial quadrants that realty broker-investment adviser CBRE-New England surveyed for its latest yearend "snapshot'' of office and industrial-warehouse occupancy and vacancies, the Hartford north sector — which covers Bloomfield, Windsor, Windsor Locks, Enfield and East Windsor — suffered the steepest climb in its ratio of empty office space.

Its office vacancy nearly doubled to 32.4 percent — the highest in nearly two decades, according to CBRE-New England's latest survey released Jan. 12 at its annual market overview at the Hartford Marriott Downtown. Hartford north's high office vacancy stands in contrast to downtown Hartford's yearend vacancy of 17.2 percent, which eased from 18.1 percent a year earlier.

And it could rise still higher. Business-equipment vendor Konica-Minolta's November announcement that it will vacate its Windsor offices at 500 Day Hill Road, and relocate some 550 employees to New Jersey by early 2019, means it may take longer than planned to trim Hartford north's vacancy rate.

Landlords in other suburban office-space quadrants — Hartford south, Hartford east and Hartford west — also had trouble absorbing vacant office space, CBRE data shows.

This isn't the first time central Connecticut's prime office markets, particularly Hartford north, have struggled with negative office-space absorption, meaning tenants vacated more space than they filled. In time, those markets likely will return to positive absorption, said Michael S. Puzzo, senior vice president/partner in CBRE-New England's Hartford office.

"It's an issue that the market's going to have to work through,'' Puzzo said.

The key, he said, will be office landlords with unfilled buildings differentiating their properties and amenities, to land or retain tenants. One New York landlord who recently acquired five moribund properties in Windsor says those efforts have already begun.

Hartford north is comprised generally of commercial buildings and acreage. The quadrant is home to dozens of investor- and corporate-owned office, warehouse-distribution and industrial buildings.

Brokers note the irony that while Hartford north office landlords struggle to fill vacancies, their industrial counterparts cannot build or lease warehouse-distribution space there fast enough. Hartford north has the Greater Hartford region's largest industrial inventory and its yearend vacancy of 6.9 percent was second lowest after the much-smaller Hartford south's 6.7 percent vacancy, according CBRE's survey.

Amazon leases a fulfillment center on Windsor's Day Hill Road, the same artery where wealth-manager Voya Financial and insurer The Hartford have offices. In Bloomfield, a 690,000-square-foot, $79 million distribution center is going up for Trader Joe's.

Hartford north's 3.7 million-square-foot inventory of office space pales to leader Hartford west, which includes the towns of West Hartford and Farmington, with 5.3 million square feet. The suburban east (East Hartford, Glastonbury, Rocky Hill) and south (Wethersfield, Wallingford) office quadrants, too, clock in at around 3.3 million square feet.

But such comparatively small office inventories can produce volatility in their vacancy rates when a single tenant moves in or out, said broker Tom York, partner in Goman + York Property Advisers Inc. in East Hartford.

One example, York said, was General Electric's decision to vacate 200 Great Pond Road in Windsor, following its Nov. 2015 purchase of the building's lead tenant, French power-and-grid engineering giant Alstom SA. GE later opted to consolidate Alstom's two Windsor offices into Addison Corporate Center, 175 Addison Road.

Until two years ago, 175 Addison was enmeshed in lawsuits over millions in alleged missing rents and recriminations between its sponsor and tenant/investors. Since 2016, a new sponsor and a $50 million recapitalization, including funds for extensive building improvements, stabilized the building and its occupants, brokers say.

The vacancies at 200 Great Pond added about 5 percentage points to Hartford north's 2017 vacancy, York said. Its vacancy level took another hit, brokers say, when direct-mail vendor Valassis Inc. vacated 97,000 square feet at One Targeting Center in Windsor.

"Steep vacancy fluctuations are historically consistent for this market," York said, "because of its disproportionate amount of larger blocks of institutional tenant space."

Landlords’ opportunity

Another reality for the commercial office market, brokers say, is that when seeking office space, corporate executives favor buildings in markets or regions near where they and many of their employees live, to shorten their commutes. That favors the Hartford west market, covering such wealthy suburban enclaves as West Hartford, Farmington and Southington.

Hartford's Sentry Commercial is currently marketing the vacated Valassis space at One Targeting to sublease prospects, said listing broker Larry Levere. Hospital operator Trinity Health of New England toured the Valassis space, but ultimately chose the Cigna-MetLife campus, off Cottage Grove Road in Bloomfield, Levere said.

"The north market, for whatever reason, has always been the last market to catch up,'' he said.

Yet, amid Hartford north's vacancy struggle some landlords are pursuing opportunity. CBRE-New England brokered New York realty investor Vasco Ventures' approximately $6 million acquisition in 2017 of five distressed Windsor office buildings mired in low vacancy. They are: 4, 6 and 8 Griffin Road; and 1 and 2 Waterside Crossing.

Between them, the quintet are barely 45 percent occupied, said Vasco official Aaron Weinberg. The U.S. Postal Service, whose regional administrative offices occupy nearly all of 6 Griffin Road, is Vasco's biggest tenant among its Hartford north office holdings.

While 4 Griffin Road and 1 and 2 Waterside have "significant vacancies,'' Vasco doesn't intend for them to be under-occupied for long, Weinberg said.

Vasco is investing millions, he said, to spruce up all five buildings, including new mechanicals in some and new elevators and amenities in others.

Another plus for Hartford north is that it appeals to Connecticut and out-of-state engineering firms and subcontractors doing work with or for jet-engine maker Pratt & Whitney and other United Technologies Corp. divisions, says Jim Burke, Windsor's economic development director.

Engineering-services provider QuEST Global, Belcan LLC, a supplier of engineering talent, and aeroparts supplier Triumph Group are among Pratt-UTC vendors and subs that have recently become Hartford north tenants. QuEST, Belcan and Triumph are 175 Addison tenants.

Brokers also say some existing tenants are exploiting landlords' aggressive lease offers and moving from one building to another, to cut overhead.

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