Hartford Business Journal

HARTFORDBUSINESS.COM | JANUARY 13, 2025 25 HBJ PHOTO | MICHAEL PUFFER INDUSTRY OUTLOOK | INDUSTRIAL REAL ESTATE Art Ross is an executive managing director for commercial real estate company Newmark. Tight industrial inventory means steady demand, continued high rents into 2025 recently completed for, but not occu- pied by, online retailer Wayfair. Slower third-quarter leasing demand, according to CBRE, was driven by the higher interest rate environment. Even so, the average asking rent was up 4.6% due to relatively low vacancies. The biggest third-quarter deal involved Connecticut Children's Medical Center, which signed a 55,000-square-foot lease at 300 East River Drive in East Hartford. ICU Medical leased 50,000 square feet in Bristol. Smaller leases by local companies were the main driver in the market, according to CBRE. O,R&L Managing Partner Jay Morris believes stub- bornly high borrowing costs will continue to restrict the amount of new industrial space added to the market, meaning steady demand and continued high lease rates for existing spaces. "Industrial, I would say, has cooled, and interest rates are part of it," Morris said. "There still is very low overall vacancy rates. It's still a good market." By Michael Puffer mpuffer@hartfordbusiness.com D emand for Connecticut industrial and logistics space has cooled over the past two years, especially for the enormous warehouses previously desired by nationally recognizable tenants. Even so, industrial real estate experts say existing inventory enjoys high occupancy and steady demand, which has reduced availability and continued to support historically high lease rates. That trend is expected to continue into 2025. If there is any curveball, experts say it could come from the incoming Trump administration's economic policies. Adam Winstanley, principal of Massachusetts-based real estate develop- ment and investment giant Winstanley Enterprises, said all 8.5 million square feet of logistics space owned by his company in Connecticut is leased. Over the past two years, he said, demand has shifted from massive buildings to spaces between 75,000 and 300,000 square feet. "A lot of these companies, whether it's Target or Home Depot or Walmart, have really dialed back their logistics networks," Winstanley said of tenants that have sought out larger industrial spaces in recent years. "Demand has pulled back." While demand for massive logis- tics spaces has cooled, it has not entirely gone away. Winstanley antic- ipates launching construction of a 420,000-square-foot, build-to-suit warehouse on King Street in Enfield next summer. He's also negotiating with a potential tenant for another large Enfield development. "I certainly think there's not an over- supply of inventory," Winstanley said. "It is a good market, but not a great market. I still think a good market will see a need for construction." President-elect Donald Trump's promised tariffs could prompt some companies to move manufacturing to the U.S., Winstanley said, fueling addi- tional demand for industrial space. He said he recently spoke with "a fairly major" Italian company that was preparing the groundwork for a move to the U.S., in response to anticipated Trump policies. Art Ross, executive managing director of commercial real estate company Newmark, also expects steady industrial demand to continue to support strong lease rates. He is, however, wary that potential tariffs and mass deportations might produce economic shocks that ulti- mately hit the industrial market. "I think the coming year is going to look, at least in the coming six months, much like the past six months, with the caveat of the tariffs," Ross said. Interest rate impact The Greater Hartford industrial real estate market, which encompasses 80.3 million square feet of space, had a 5.5% vacancy rate at the close of the third quarter in 2024, according to a market analysis by CBRE. The third quarter saw 162,000 square feet of leasing activity in Greater Hartford, down threefold from the prior quarter, according to CBRE. The vacancy rate inched higher due to a large sublease opening at an empty 1.2-million- square-foot East Hartford warehouse GREATER HARTFORD INDUSTRIAL MARKET SNAPSHOT (3Q 2024) INVENTORY 80.3M sq. ft. VACANCY RATE 5.5% YEAR-TO-DATE ABSORPTION 728,457 sq. ft. AVG. ASKING RENT (PER SQ. FT.) $7.49 Source: CBRE Adam Winstanley Jay Morris EXPERT'S CORNER Transfer Act and PFAS: two issues to watch in 2025 for commercial real estate industry By Gary O'Connor and Steven J. Stafstrom Jr. A s a small state with a long industrial history, Connecticut has relatively high concentra- tions of brownfields and other sites requiring environmental remediation. Streamlining the process of cleaning up and redeveloping these sites is essential to Connecticut's economic growth. While the commercial and indus- trial real estate industry awaits the sunsetting of the Transfer Act, which many stakeholders believe has been a major impediment to the transfer and redevelopment of contaminated properties, a family of emerging chemicals — commonly referred to as PFAS — poses the biggest potential threat to the real estate market in a generation. Transfer Act to sunset 2025 may finally be the year Connecticut leaves the Transfer Act behind. For decades, the Transfer Act, which was enacted to ensure the cleanup of properties when they are transferred or sold, has been a hindrance to the redevelopment of contaminated sites. Continued on next page It's incredibly easy to trigger, expen- sive to comply with, and relatively ineffective with only about 10% of filings initiated ever closed. In 2020, the legislature passed Public Act 20-9 to replace the Transfer Act with a new release- based cleanup program, which would

• Cover