Column: Commercial Real Estate Report: Slow, but Steadily Tighter
By Allan Murphy
Sentinel Business Columnist
The Greenwich commercial office market is behaving a little like the tortoise: slow but steady. There is some new and expanding tenant activity (and lease renewals are ongoing) but the overall pace of new leasing is slow, as tenants remain cautious and conservative about taking on new lease obligations.
Market statistics bear this out. The Greenwich office market has about 4.4 million square feet of Class A/B office space, with an overall availability rate of 17 percent. This is split pretty evenly between the Class A/A- properties (representing about 80 percent of the space that is tracked) with an 18 percent availability rate, and the Class B properties with a 15 percent availability rate. (As an aside, we use the term “availability rate” rather than “vacancy rate,” as spaces may be available even if they are occupied or available but unoccupied and rent paying. The “availability rate” provides the best indicator of how much square footage is available for a tenant to consider.)
Looking back over the last three years, the overall Greenwich availability rate has declined steadily, dropping by about 3 percent each year. There is still a good amount of space available, but the trend indicates that the market is getting tighter over time. As you might expect, the best spaces in the best locations (central Greenwich near the train) tend to lease first, though that is tempered by higher pricing for these more desirable spaces. The pricing difference between a Class A property at the Greenwich Train Station (55 Railroad Avenue for example) and a Class A property in western Greenwich (e.g., Greenwich Office Park) is dramatic—by a factor of three! Near the train station, one can expect to pay around $120 per square foot, compared to the low $40s per square foot in western Greenwich.
Why such a difference? For some financial industry tenants, the ability to attract and retain young talent is paramount, and that youthful talent wants to live in New York City, not Greenwich or Stamford (at least not yet). These firms must make it easy and convenient for this talent pool to get to work—and an express train from Grand Central to their office-building doorstep is a big help.
The required lease rate for that train station building becomes a secondary consideration. There is the further consideration: the principals and other employees may need to be in and out of New York City on a regular basis, or may have analysts and other visitors for whom they want to make a trip to Greenwich an easy experience. Finally, there’s the benefit being close to the restaurants and stores on Greenwich Avenue—though that may be more for the principals, as the employees need to stay pretty focused to justify that $120-per-square-foot space they occupy.
Still, $100-per-square-foot-plus rents aren’t tolerable for everyone, or train station access may not be critical, so more cost-conscious tenants go east or west to more modestly priced office space. This week the law firm Withers Bergman is leaving 4,500 square feet of space on Steamboat Road to expand into 17,000 square feet in Old Greenwich. And Gordon Haskett Capital recently left 4,500 square feet in central Greenwich for a newer, nicer, bigger space in western Greenwich, while still decreasing its rent by one-third.
A couple of more closing statistics that may be interesting: We looked at the largest 33 lease transactions (new leases and renewals) over the last six months, the smallest being 1,300 square feet and the largest being the Withers Bergman lease of just over 17,000 square feet. About 85 percent were finance-related tenants and the split was about 50/50 between central Greenwich and eastern/western Greenwich. Seven tenants were over 10,000 square feet in size, and 26 tenants were under 7,000 square feet. Now, onward to the next six months, where slow and steady might be just fine.
Allan Murphy is a senior managing director at the commercial real estate services firm Newmark Grubb Knight Frank. He has specialized in the Greenwich and Stamford markets since 1996.