Connecticut market conditions better than most.

Although the first quarter slowdown across the country has been felt in the office market here in Connecticut, the state's economy has weathered the storm reasonably well. The state's Department of Labor reported last month that Connecticut's economic numbers indicate that we are not in recession. The state still has one of the highest per capita incomes in the country, and one of best job growth rates.

Looking forward, the prospect of even higher gas prices and a continued difficult housing market could make employers cautious, however, Connecticut's insurance and defense industries are holding their own. The state also benefits from Manhattan based companies moving north to lower occupancy and labor costs. And the value of the dollar has also created an opportunity for Connecticut exporters. Last year, the state reported that exports increased over 12%, the highest rate of increase in all of New England. Film industry tax credits have also created opportunity in the state as companies take advantage of Connecticut incentives. Blue Sky Studios, for example, moved to Greenwich because of these tax credits, taking 103,000 s/f.

We are seeing that our clients require more advice and analysis because. the Connecticut office markets are so diverse and in flux. Each situation is unique and requires the local knowledge of the players and dynamics to take advantage of the current conditions.

Landlords need more help to keep their building occupancy at high levels and creative solutions. In one situation, we created a bidding war for space at one of our sublease agencies in a prime building near a key commuter train station. It created excitement and maximized the rent. Our tenants, on the other hand, also require more help to make informed decisions so that they can take advantage of opportunity in the market when it exists.

On the development side, we are exploring creative ways to help our clients structure deals that will work for everyone. In today's market, Landlord's are clinging to high valuations on their assets and are disappointed with the market reality. We are working more and more with our clients to help them identify underperforming assets to turn then into win-win structures that generate value for landlords after the transactions, while tenants get space that meets their criteria in this supply constrained market.

The tight financial situation has certainly slowed investment sale activity, but it has had only a modest effect in office leasing--pricing remains strong. Investment deals do look different today, Financing is obviously more difficult, and all but impossible for conventional financing over $30 million. Lenders are avoiding anything speculative. Many local players are sitting on cash, waiting. Few are making risky investments. And yet Summit Development's purchase of the Advocate site in Stamford and Greenwich, for cash, got done quickly because it was priced to move. We may see more of these type deals, if in fact, the state does move into recession.

Typical office deals are taking longer to close because companies are more cautious. Many are requesting shorter terms or more concessions--but rates remain firm in desirable areas. Renewals continue, and we're seeing some downsizing, but not many major expansions. Larger companies are consolidating into their better locations, such as Citibank into Stamford. On the supply side, we still expect fallout from the financing arena and anticipate an influx of new sublease availability.

On the demand side there is a very definable progression of companies "moving up the line," from NYC to Lower Fairfield County then Northern or Eastern Fairfield County, for the duel benefits of cheaper labor and less expensive occupancy costs. Connecticut has a highly educated and diverse labor pool.

Fairfield County has remained relatively stable, due in part to the formidable strength of the Greenwich Office market, with some rents over $100 psf, but office taking rates in Stamford have had downward pressure. This is not surprising given the recent ramp up of prices. Fairfield County is still highly sought after by many companies looking to relocate out of Manhattan. There has been a slow migration of back office uses.

Many Manhattan based companies are in the process of evaluating Fairfield County, seeking roughly 100,000 s/f or more. Fairfield offers a substantial value is terms of rental rate saving ($34 psfas compared to $76 psf--fourth quarter asking rates) as well as a tax savings. Many white collar executives live in the area and commute to NYC.

New Haven remains relatively stable with a solid tenant base, and has remained intact recently with a vacancy rate decreasing slightly from about 15.2% to 14.7% due to Bayer vacating a major complex, but Yale University snapped up the property and is growing rapidly in addition to other leases in the area. On a vacancy rate comparison it was one of the four best performing markets in the country.

Connecticut's economy and office markets remain healthy. Its diverse economy will weather the economic conditions better than most. The desirable office buildings near commuter train stations won't feel tremendous pressure to reduce rates or increase concessions. Tertiary areas, though, will feel the pressure, and we are advising our office space seeking clients to take advantage of these market conditions when appropriate.

By CORY GUBNER, PRESIDENT AND CEO, GVA WILLIAMS OF CONNECTICUT, AND ANDREW CARNEY, VICE PRESIDENT, GVA WILLIAMS OF CONNECTICUT