Office Vacancy Rates To Rise, Retail To Fall

NEW HAVEN-In separate reports on the office and retail markets in Fairfield and New Haven counties, Marcus & Millichap Real Estate Investment Services predicts different market conditions for the two industry sectors. For the office market, the firm says soft employment growth will cause upward pressure on office vacancy rates, while increased demand for retail space will result in a modest decline in retail vacancy rates in the region.

Edward Jordan, regional manager for Marcus & Millichap’s New Haven office, says of the retail markets in Fairfield and New Haven counties, “while the performance of older strip centers will lag the overall market in the short term, such properties are increasingly emerging as solid value-add opportunities for forward-looking investors.” He says that a predicted modest increase in retail space demand, coupled with a decline in completions, will support a slight decrease in retail vacancies.

In the region’s most affluent areas, vacancy rates will hover in the high 4% to low 5% range. The report states that approximately 500,000 sf of retail will be completed in 2008 in the region and that the marketwide vacancy rate will decline 20 basis points to 7.6% at year’s end. Asking rents are projected to rise 2.4% to $22.10 per sf by the end of 2008.

On the office side, Marcus & Millichap states in its report that “office properties in the region will operate in a less hospitable climate in 2008.” Vacancy rates in Fairfield County will rise 50 basis points to 14.3%, while rates in New Haven County are expected to jump 90 basis points to 16.4% by year-end. Besides slowing employment growth, the firm cites the give-back of 485,000 sf of former Xerox and General Electric space in Stamford as one of the reasons vacancy rates will increase in Fairfield County, while supply side growth and flat office-using employment were cited as chief causes for upward pressure on office vacancy rates in New Haven County.

Regionally, the firm predicts office rents will increase 2.6% to $31.01 per sf in 2008. In terms of the investment climate, the report states, “as 2008 began, cap rates in the market ranged from 5.7% to 7%, reflecting trades of many top-tier properties in areas such as Stamford and Greenwich. Recent offerings, however, are pricing in the low 7% range to take into account lowered expectations for near-term rent growth and occupancy improvements. Owners of class A and B assets will continue to adjust expectations in the early part of this year.”