Hartford Business Journal

10 | BOOK OF LISTS 2020 ECONOMIC FORECAST // REAL ESTATE Despite tenant downsizing and suburban migration, region's office market likely stable in 2020 By John McCormick, Anna Kocsondy and Kyle Roberts I n 2019, the Greater Hartford office market saw tenants looking for ways to become more efficient — typically resulting in companies downsizing their square footage. This trend of maximizing efficiency can be attributed to an increase in overall vacancy rates in the market and is expected to continue into 2020. Large employers will likely continue to consolidate their footprint to owner-occupied campuses as tenants remain focused on cost containment and lease flexibility. Despite tenants downsizing, the market will likely continue to be stable in 2020 as there is already solid demand for space from both Hartford and adjacent suburbs. As a result, office lease rates in suburban Hartford and the central business district (CBD) are expected to remain flat in 2020 with a forecasted absorption of 150,000 square feet to 200,000 square feet. Suburban migration, a recurring trend in Hartford during the past eight years, is also expected to continue well into 2020 as there are already several large pending suburban lease transactions. On the sales side of the office market, numbers have been increasingly strong over the past few years. As expected, office sales have grown significantly since 2017, when there were eight sales for the year compared to the 18 sales so far in 2019 (through mid-November). A disproportionate share of activity was from the suburban market. Most owners were able to sell at premium or market price based upon the low interest rate environment. Regional buyers were attracted to steady cash flows from credit tenants. Leasing in the Greater Hartford industrial market is also expected to remain steady, but not necessarily be robust. There is a continued constraint on the availability of quality warehouse and distribution spaces in the market. This will lead to availability and vacancy rates decreasing, which will ultimately drive lease rates up. As a result, existing tenants with leases expiring soon will likely renew their current leases due to a lack of available options with better quality and/or lower rents. The e-commerce industry will contribute significantly to demand as it drives the need for buildings in the 500,000 square feet to $1 million square feet-plus range. Here are some notable deals from 2019: Major leases in downtown Hartford: • Murtha Cullina (25,000 sq. ft.) and a confidential financial services firm (15,000 sq. ft.) both left CityPlace I after long-term (30-plus year) tenancies. Murtha Cullina relocated to the 12th floor at 280 Trumbull, while the financial services firm relocated to Goodwin Square. • At CityPlace I, four leasing deals were completed (47,000 sq. ft.) to date and one pending (18,000 sq. ft.). Four of these deals are new tenants while Bracewell renewed its lease for five years. • One Financial Plaza sold to a joint venture between Shelbourne Global and LAZ Parking for $70.5 million ($115 per sq. ft.). Shelbourne continues to be active in downtown Hartford, recently purchasing the south side of Pratt Street for $8 million and the former Allyn Street parking lot for $3.8 million. • Hartford Square North sold at auction for $16.8 million to a New York-based private equity investor. Major leases outside of Hartford: • West: ConnectiCare signed an eight-year lease for 28,000 sq. ft. at 195 Scott Swamp Road, an expansion off its Farmington campus. • East: Amica relocated to a 30,017 sq. ft. space in 101 East River Drive, East Hartford from Glastonbury. • South: 500 Enterprise Drive in Rocky Hill dominated Hartford leasing activity: Baker Engineering renewed for 12,000 sq. ft.; COCC signed a new five-year lease for 23,000 sq. ft.; and Acadia renewed for 10,000 sq. ft. • North: General Electric relocated 107,000 sq. ft. to 200 Great Pond Road in Windsor. Sales: • Olymbec out of Canada purchased two office buildings in East Hartford and one in Glastonbury totaling $15.7 million ($61 per sq. ft.). The buildings include a strong mix of regional and national tenants. • 180 & 200 Glastonbury Blvd., in Glastonbury sold for $30.3 million ($164 per sq. ft.), which is the strongest multi-tenant office asset to come to market since 2016. An affiliate of Simsbury's Hart Realty Advisers bought the property. John McCormick is the executive vice president, Anna Kocsondy is vice president, and Kyle Roberts is vice president of commercial brokerage firm CBRE in Hartford. Millennials could be key to boosting residential real estate market in 2020 Q&A talks to Realtor and Greater Hartford Association of Realtors Board President Rob Levine about the outlook for the region's residential real estate market in 2020. How did Greater Hartford's residential real estate market fare in 2019? According to recent numbers from the Greater Hartford Association of Realtors, we saw a 2.62-percent rise in closed sales through October, compared to a year earlier (5,459 sales vs. 5,602). Even with that slight gain in sales, prices have been stable. The median sales price increased 0.41 percent (from $246,000 to $247,000). We've also seen tightened inventory. It is still a great time to buy with interest rates at historically low levels. What's the 2020 Greater Hartford residential real estate market outlook? The key for our housing market depends on keeping people and businesses in the state. Realtors do a great job of fighting for homeowner rights legislatively so we can keep people buying and selling in Greater Hartford and around the state. A report that came out in the spring ranked Hartford in the nation's top 10 places to live if you're a Millennial. If we can continue to attract that market and prices remain stable, then our housing market will be a competitive one. What factors (economic or otherwise) will have the biggest impact on the residential real estate market in 2020? Because Greater Hartford has Millennials and a large portion of Baby Boomers, there is a unique opportunity for those looking to increase or downsize their living area. Legislation to help first-time homebuyers would go a long way in advancing our market. Our downtown has seen livable space increase with the popularity of the Yard Goats and the uptick in restaurants and breweries. Affordability rates are high and interest rates remain historically low so getting that message to Millennials will be important to the growth of homeownership. There are always peaks and valleys to the market, so our challenge will be to increase the desirability of living and working in Greater Hartford. What do you expect to see in terms of interest rates and the impact on homebuying? Homeownership is still a great investment thanks to historically low mortgage rates. The cost of renting a renovated apartment building downtown is on the rise, making buying a home a real option. As long as there is available inventory for all levels of income, then these low interest rates are a bonus. The only potential problem in the year ahead would be if the Federal Reserve raises short-term interest rates too quickly, which could slow growth. What's the outlook for new homebuilding in 2020? Greater Hartford's housing inventory is older so the space for new builds just isn't there like in other areas of the state. That being said, there has been a flurry of housing renovations in our area. Younger buyers are looking for move-in ready houses so there is a market for older but updated homes. John McCormick Anna Kocsondy Kyle Roberts Rob Levine

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