Fairfield office market finishes first half in strong position.

The Fairfield County office market finished the first half of the year with more than 1.9 million square feet of space leased and a county-wide availability rate of 10.7 percent - a two percentage point drop from this time a year ago, according to the Insignia/ESG Midyear Office Market Report released July 1st.

Net absorption totaled 474,210 square feet of space, a turnaround from the 202,256 square feet of negative absorption reported for the first half of 1997. As a result, availability rates were lower in all four of the county's market segments. The average asking rental rate for Class A and B space at mid-year was $22.79, a gain of $2.50 per square foot from a year ago.

With the county-wide availability rate of 8.9 percent for Class A space nearing equilibrium, the shortage of prime office offerings has generated interest in new construction, especially for users of large blocks of space. For example, Cendant Corporation, which outgrew its space in Stamford, will relocate to a 320,000 square-foot headquarters facility in Wilton to be built by Louis Dreyfus Property Group. Cendant plans to lease 200,000 square feet in the building, with an option to expand. In addition, Hewitt Associates has broken ground on a 175,000 square-foot building at Merritt 7 in Norwalk and GE Capital recently acquired 15 acres for a 180,000 square-foot building at Berkshire Office Park in Bethel.

The largest lease transaction so far this year was United Distillers' consolidation and relocation into 100,000 square feet at 750 East Main Street in Stamford. Other significant transactions included a 75,000 square-foot lease by TN Technologies Inc. at 230 East Avenue in Norwalk; UBS AG's lease of 38,173 square feet at 680 Washington Boulevard in Stamford; a 35,773 square-foot lease by Kodak Polychrome Graphics at 401 Merritt 7 in Norwalk; a 32,427 square-foot lease by Trenwick Group, Inc. at Canterbury Green in Stamford; Mercedes-Benz Credit Corp.'s expansion of 30,146 square feet at 201 Merritt 7 in Norwalk; and Unilever/HPC, USA's 30,000 square-foot lease at 55 Merritt Boulevard in Trumbull.

"The Fairfield County office market is entering a new period of sustained demand as it adjusts to a shortage of Class A space," said Michael Klein, executive director of Insignia/ESG's Westchester-Connecticut office. "We are seeing more build-to-suit activity and even some speculative office construction. Much of the market activity is being driven by financial services and high technology companies that are looking to expand or find better facilities."

Klein also observed that rental rates continue to edge higher, especially in downtown Stamford, where space in Class A buildings commands rents in the low- to mid-$30's. "Consequently, tenants are now making longer-term lease commitments in order to lock in some protection from the anticipated higher rents," he noted.

A survey of Fairfield County's four market segments showed the following:

Stamford/Fairfield County Central Business District

Although Stamford led the Fairfield County market in first-half leasing activity with 737,120 square feet in transactions, absorption was a modest 37,712 square feet. Offsetting the strong leasing was the return of several large blocks of space to the market at Stamford Harbor Plaza, 9 West Broad Street, 333 Ludlow Street North Tower and 70 Seaview Avenue. However, the sale of the 484,000 square-foot GTE Building to Zurich Reinsurance, expected to close by year's end, should boost absorption and reduce the city's availability rate. At midyear, this availability rate was 12.5 percent, almost 1.5 percentage points lower than June 1997. Major deals included: Fact Set Data Systems, Inc., GE Capital, GTE Corp., NorStar Holdings, OMI Corp., Sacred Heart University, Omega Engineering, Reuters, Inc., Trenwick Group, Inc., UBS AG and United Distillers North America.

Fairfield County West

Strong leasing activity and solid absorption combined to push the availability rate in the Fairfield West segment to the lowest in the county - 7.1 percent, down 2.4 percentage points from a year ago. A total of 503,251 square feet was leased and 200,741 square feet absorbed in the first half of the year in this submarket, with the largest transaction being TN Technologies Inc.'s 75,000 square-foot lease at 230 East Avenue in Norwalk, a former factory outlet building converted to Class A space. Major deals included: FMAC, Kodak Polychrome Graphics, Mercedes-Benz Credit Corp. and TN Technologies, Inc.

Fairfield County East

The Fairfield East segment finished the first half with the county's largest absorption total - 262,410 square feet - and the second strongest leasing activity, 592,945 square feet. Expansions by existing businesses, including Unilever/HPC, USA, Playtex Products, Inc., and Physicians Health Services, accounted for most of the gains in this segment and led to the shedding of nearly three percentage points from its mid-year 1997 availability rate. Major deals included: Brand Direct, Dawson Sandburg, IPC Information Systems, PHS, Playtex Products, Inc., St. Vincent's Hospital, and Unilever/HPC, USA.

Fairfield County North

Despite almost 93,000 square feet of leasing activity in the first half of 1998, the return of other blocks of space to the Fairfield North segment's available supply resulted in mid-year negative absorption of 26,653 square fee. The mid-year availability rate, however, fell more than a point from 12 months earlier, to 14.4 percent. Major deals included: Boehringer Ingleheim Pharmaceuticals, Inc., Micro Design Software and Prestone Products Corp.