Hartford Business Journal

10 | BOOK OF LISTS 2021 COVID-19 weighs on Greater Hartford's commercial real estate market By Evan Carlson, Research Data Analyst, CBRE T he Greater Hartford office market opened the first quarter of 2020 with more than 220,000 square feet of positive absorption, welcome news for a market that saw over 250,000 square feet of Class A negative absorption in 2019. In March, the COVID-19 pandemic hit the United States, abruptly freezing market activity. Sales and leasing transactions in process continued to fruition with little interruption as stakeholders on all sides attempted to keep business as usual amidst the uncertainty of COVID-19. In the summer months, landlords and tenants became increasingly more creative under the unprecedented global market disruption. Tenants considering big moves focused on work-from-home strategies and a reevaluation of space needs. Landlords began offering attractive tenant improvement packages and lease terms with additional rent concessions. They also revised price offerings, resulting in downward pressure on average asking rental rates, which continue to soften into year-end. As CBRE forecast last year, sales volume and pricing returned to 2018 levels with 13 sales in the Hartford market through mid-November for approximately $92 million. Almost half of the buildings sold were vacant, or to be vacant, decreasing the sales price per square foot from 2018. The Hartford industrial market has proven resistant to COVID-19 uncertainty as strong demand, limited supply and access to quality labor define the market. The e-commerce industry has boosted demand for buildings in the 500,000 to 1 million-square-foot or more range. Greater Hartford's access to more than 23.5 million people in a 200-mile drive has increased demand for "last mile" facilities. Limited inventory has caused a rise in rental rates, allowing new construction to become feasible. The COVID-19 commercial real estate trends being experienced throughout the country are no different in Greater Hartford. Corporate real estate strategies — particularly long-range planning — are being impacted, compounded by uncertainty about jobs in Connecticut. Continued work-from-home mandates pose challenges for landlords and tenants, with a likely 10% to 15% impact on space needs for large employers post-vaccine. Most Hartford-based large employers are waiting until mid-2021 to mobilize their workforces, adopting a "better to be safe than first" mentality. COVID-19 will impact leasing transactions into 2021 as we see many tenants defaulting to short-term renewals, limiting the number of tours and leasing opportunities. Notable 2020 transactions Downtown Hartford leasing highlights: • CAP Specialty and RMS signed long-term leases at CityPlace I and Goodwin Square, respectively. • 55 Elm St. was the only major sale in downtown Hartford, purchased by Spinnaker Properties, with plans to convert to multifamily residential. Sales: • 5 Farm Springs Road in Farmington sold by Raytheon Technologies to Otis Worldwide Corp. for $5.7 million, or $93 per square foot — Otis occupied the building, part of the sale of UTC to Raytheon and Otis split. • 30 Batterson Park Road in Farmington sold by an affiliate of Konover Investments to Avon-based MJ Fish Properties for $6.25 million, or $81 per square foot. • Brooks Brothers sold its industrial and office buildings in Enfield to Simon Property Group, one of the largest retail REITs in the country and the largest mall operator in the U.S. A 170,000-square-foot office building at 100 Phoenix Ave. sold for $41 per square foot, or $7 million. • 96% occupied Branford Business Center was purchased by Benerofe Properties for $13 million, or $91 per square foot. It's a five-building flex industrial/lab/R&D/medical office complex. CT's hot home sales market to continue in 2021; tight inventory a threat Q&A talks with Candace Adams, the president and CEO of Berkshire Hathaway HomeServices New England, New York and Westchester Properties. Connecticut's housing market is coming off a very unusual year, as the COVID-19 pandemic led to a relative boom in single-family home sales and prices. Can you give a brief overview of what took place in the market? 2020 started off a very strong year for real estate sales in Connecticut. Historically low interest rates and pent-up demand spurred a flurry of activity early in the year. The market came to a halt in March when COVID cases started rising. It was virtually at a standstill through April, and in May people began to start migrating out of densely populated areas. Connecticut deemed real estate as "essential," therefore we were able to conduct business using CDC protocols. A wave of buyers came into the market. This was due to multiple factors. First, the pent-up spring demand of buyers who were already in the market, and second, the migration out of densely populated areas brought significant activity to the market. Listings that had been on the market for several months were now selling with multiple offers. Buyers have moved further from urban centers and are migrating to areas of the state in addition to Fairfield County, including New Haven, Hartford, Litchfield and New London counties. Windham County has also seen surges from the Boston area. Low interest rates were propelling first-time buyers into the market, and Millennials who were now able to work from home decided to enter the market. What do you see as the main drivers that drove up demand for homes? As sellers started to feel more confident about listing their homes, the market heated up with nearly every property being shown to multiple buyers and many selling after receiving multiple offers. That continues today. COVID brought out a psychological need to "nest" and vertical living became less appealing. Single-family residences are in high demand, with home offices, pools and gyms becoming the most searched keywords. As we enter the first quarter of 2021, infections have been surging. Will that merely increase demand further? 2021 should continue to be active with continued buyer demand and low interest rates. The wildcard will be inventory available. As more people have refinanced their homes or decided to do renovations, fewer listings are coming to the market. It is our hope that builders will continue to bring new product to the market to meet some of the demand. Do you see the buying boom lasting through 2021? What factors might push things back down to more normal levels? The buying boom will no doubt balance out midyear as the virus subsides and most of the demand has been met. A new trend will emerge that will be impacted by migration patterns, interest rates, employment and consumer confidence. It is likely that the market will become more normal with available inventory and ample buyer demand. Working from home will no doubt continue into the unforeseen future and will allow people to move further out of densely populated urban areas as well as suburbs. What's the current state of Connecticut's housing inventory? The current state of Connecticut inventory is that there is less than 3 months of inventory available. It is at an all-time low and it will impact the market as we move into 2021. More listings have come to the market this fall vs. last fall as a result of "pent-up" sellers. Many have delayed listing their homes due to the pandemic. Candace Adams Evan Carlson ECONOMIC FORECAST // REAL ESTATE

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