Business brisk in Fairfield as market sustains growth.

Fairfield County's office real estate market demonstrated ongoing strength in the first half of 2006, with brisk demand and upward pricing pressure marketwide.

The dominant factor driving escalations in rental rates was the reduction of space returns coupled with continued demand for space. New office supply growth will be concentrated in the Central and Eastern submarkets, even though relocations from Stamford and Greenwich to the Central market decelerated in the first half of 2006.

The overall Fairfield County market recorded more than 260,600 s/f of positive net absorption for the first half of the year, 90% of which occurred in Stamford. This was a significant reversal from negative absorption of 493,800 s/f recorded through June 2005. As a result, the availability rate fell by 2.5 points over the past 12 months, from 17.8% to 15.3%.

So far this year, there were 15 major leases signed for more than 20,000 s/f, compared with 13 in the first half of 2005.

These included: Boehringer Ingelheim Pharmaceutical's expansion by 98,000 s/f on Old Ridgebury Road in Danbury; RBS Greenwich Capital's 86,000 s/f lease in the Stamford CBD; Terex Corporation's 77,300 s/f lease in Westport; Arch Chemical's 60,045 s/f in Norwalk; and Cablevision's 60,000 s/f deal in Shelton. As a result, the number of available contiguous-blocks of 100,000 s/f or more declined from 13 to nine in the first half of 2006.

In this environment of tightening supply and increasing rents, the market was still home to nearly 1.7 million square feet of leasing activity, down only 4% from the year-earlier period.

The market is expected to continue to sustain moderate, well-paced growth. Indeed, several substantial tenants have deals pending for the third and fourth quarter of 2006.

Available supply is down 14% in the last 12 months. Average asking rents are up 6% this year over last, closing the first half of the year at $28.91 psf.

According to Robert Caruso, managing director of CB Richard Ellis' Westchester/Fairfield office, Fairfield's overall performance indicates recovery and vitality in the market. "Recovery in Stamford was particularly critical for Fairfield County as a whole as it continues to showcase the attractiveness of the area as a Financial Center."

Tenants with significant space requirements drove activity in the first half of 2006, with the number of mid-sized transactions dropping. Although continued Fed rate hikes sent mixed signals to the broader financial market, the health of the Fairfield economy was demonstrated through the expansion of tenants.

In fact, expansion of local companies accounted for 47% of total activity county-wide through mid-year, compared with 17% a year ago. For example, one of the largest deals was RBS Greenwich Capital's lease for 86,000 s/f at 695 East Main Street in Stamford CBD.

Altogether, space leased in transactions over 20,000 grew over 8% from the first six months of 2005, from 37% of the county's leasing to 42% during the first half of 2006. As a result, the average transaction size increased 3% to 7,081 s/f At the same time, there were no transactions exceeding 100,000 s/f.

This, however, is likely to change as a couple of major pending transactions close in the next few months.

Fairfield County's organic growth within the market is notable. Unlike the past, when one larger relocation would boost overall leasing velocity, demand has remained stable overall with only a slight increase in leasing velocity, driven by companies who have already had a presence in the market.