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DEAL WATCH increasingly unwilling to give away the store when it comes to tenant improve- ment allowances, which has helped level off leasing rates. He is also optimistic about a growing appetite on the part of employers to pull back on policies that allow remote work. "Quite frankly, it's a pretty positive outlook we have," Gagnon said. "Will that come true? Only time will tell." John Cafasso, another Colliers principal, doesn't see any factors yet in play to pull the office market out of its post-pan- demic doldrums. But, like Gagnon, he sees some reason for hope. The best sales will be to new owners who have use for space, rather than to investors, he noted. "If you have a building with a lot of good attributes and good highway access, you will be able to get a good price from a user," Cafasso said. "If you don't have a tenant and don't have the right attributes, the building will suffer, and you will see its value plummet." Cafasso expects leasing activity to remain flat in Connecticut heading into 2025. Some tenants will continue to exercise options to downsize, while HARTFORDBUSINESS.COM | JANUARY 13, 2025 27 Rising rents Daniel Klaynberg, president of Spectra Construction and Develop- ment Corp., is optimistic about his various projects either underway or planned in Hartford. The city's growing mix of activities, retail and restaurant outlets will support the success of new multifamily develop- ments into the coming year, he said. Klaynberg credits the city's use of federal grant funding to support the refurbishment of first-floor spaces for new restaurant and retail ventures. "Something right is definitely happening," Klaynberg said. "The rents have gone up 5% year-over-year in Hart- Daniel Klaynberg INDUSTRY OUTLOOK | OFFICE MARKET John Cafasso Philip Gagnon Purchase a group subscription for your team or entire organization. Email circulation@hartfordbusiness.com Continued rough going for office market in 2025, although some see reason for hope By Michael Puffer mpuffer@hartfordbusiness.com E xperts expect the pandem- ic-induced embrace of remote work to continue to weigh down the office market in 2025, but some see reason to hope this trajec- tory could change. Philip Gagnon, a principal with real estate services firm Colliers in Hartford, in November helped broker a $4.7 million sale of a 38,206-square-foot Cromwell office building to the Connecticut Water Co., which will use the property as a new operations center. That $124-per-square-foot transaction was one of the top sales of the past quarter. So, there are deals to be made. Gagnon said he believes the strug- gling office market has found its bottom and isn't going to sink further. Also, the Greater Hartford area has seen a significant amount of demoli- tion and conversion of former office properties, chipping away at the surplus of unneeded space, he said. Landlords, Gagnon added, are others will move to higher-quality spaces at renewal time. 'Ongoing work' Shelbourne Global Solutions — downtown Hartford's largest commercial landlord — has seen its office portfolio significantly impacted by post-pandemic tenant downsizing. The Brooklyn, New York-based company said office vacancy rates in Hartford are effectively around 40%. Shelbourne is fighting an attempted foreclosure of its 23-story "Stilts Building" and 12-story "Metro Center" office towers in downtown Hartford. Meanwhile, the company continues to invest in downtown multifamily developments. Shelbourne leadership, in an email response to questions, said local and state government intervention will be needed in the coming year to incen- tivize conversion of at least 1 million square feet of office space in the city to apartments. The coming year, much like 2024, will continue to see owners attempt to reset debt on office properties to "realistic numbers," reflective of national real estate trends, Shelbourne contends. Shelbourne took more than 300,000 square feet of office space off the downtown Hartford market when it bought the office-and-retail complex at 242 Trumbull St. in 2023. Shelbourne has teamed up with prolific Hartford investor Alan Lazowski and Hartford-based Lexington Partners to redevelop the complex, starting with conversion of a roughly 86,000-square-foot annex building on Pratt Street into dormitory space for about 200 UConn students. "We have been successful in bringing several new companies to the downtown, but there are still millions of square feet (of office space) in this market available that need to be leased," Shelbourne said. Shelbourne said it will play a big role in this year's office market, at least in downtown Hartford. "… Our ongoing work at redevel- oping and adding more residential units to the (central business district), along with our continued efforts at bringing more retail to the downtown core, all contribute greatly to making downtown Hartford a more compet- itive, attractive and successful location for growing companies to want to do business in," Shelbourne said. key for the industry in the coming year. The state, for example, has allocated $60 million to launch the Connecticut Municipal Redevelop- ment Authority (MRDA) — a new statewide organization modeled after the CRDA. MRDA's mission is to advance multifamily and mixed-use projects in Connecticut downtowns and around passenger rail and bus transportation hubs. "I do think those (state programs) will provide great reasons for developers to build in those areas and complete projects that would otherwise be impos- sible to develop," Klaynberg said. ford. That's even with all this new inventory coming on the market." Over the past decade, Hartford's downtown has added 2,401 new apartments, largely thanks to low interest gap financing provided by the state- backed Capital Region Development Authority. Another 1,500 or so units are either under construction or in the development pipeline, according to CRDA. Klaynberg and his partners — brothers Evan and Matthew Levy — are redeveloping a former municipal office building at 525 Main St., in Hartford, into 42 apartments with first floor retail spaces. The first apart- ments are expected to begin renting in January or February, Klaynberg said. They're also nearing the end of a renovation of a former firehouse on Pearl Street in downtown Hartford into 35 apartments. Both projects have received CRDA backing in the form of a low interest loan. A continued easing of federal interest rates should help increase the pace of new multifamily develop- ments, Klaynberg said. State government is also increasing its support of multifamily projects, something Klaynberg said will be