Financial firms drive Greenwich rents past $120 psf.

Fairfield County's office market continued its stellar performance during the first half of 2007 with significant increases in expansions and new commitments by major companies.

The cities of Stamford and Greenwich took center stage as some of the world's leading financial services firms leased new space or expanded in these areas. Interestingly, out of the 2.1 million square feet of the total activity during the first half of 2007, nearly 39% or 863,000 s/f was leased to this business sector, according to CB Richard Ellis' Second Quarter 2007 Fairfield County Office Market Report.

"The Greenwich office market broke the $120 psf mark for the first time ever as financial services firms continued to compete for prime space in the CBD," said Robert Caruso, senior managing director of CB Richard Ellis.

"Reaching this benchmark is a testament to the quality of life and talented workforce Fairfield County offers to the financial services industry."

As a result of the robust leasing activity, the market's availability rate declined for the third straight year. In the second quarter of 2007, the availability rate dropped by 1.65 percentage points from the same time last year and now stands at 13.3%.

Strong leasing also contributed to a rise in average asking rental rates, which experienced a 22% increase from last year and ended the quarter at $32.99 per sq. ft. Industry insiders and those active in investment sales continue to bet that rental rates will maintain their upward movement. Total net absorption during the first half of 2007 was positive at 855,000 sq. ft.

The most active submarkets in Fairfield County during the first half of the year were Greenwich, Stamford and Central, all of which are considered the most desirable suburban office markets in the county. However, the escalating rents in the Greenwich submarket prompted non-financial service companies to seek out alternative locations for their office space needs, specifically within the Stamford and the Central submarkets.

Leasing activity in the second quarter was primarily driven by several large and mid-sized transactions. Commitments of over 20,000 sq. ft. made up 1.3 million sq. ft. or 60% of the total 2.1 million sq. ft. leased in Fairfield County.

While shy of the three million square feet leased in Fairfield during the first half of 2000, the 2.1 million square feet of activity posted thus far in 2007 is yet another indicator of the county's overall strength. Most of the five submarkets outperformed the previous leasing averages recorded in the second half of 2006, with Greenwich's 526,000 s/fsurpassing its average of 233,000 s/f. by 56% and Stamford CBD's 535,000 s/f topping its average of 360,000 s/f by 33%. With 690,000 s/f, the Central Fairfield submarket was at the forefront of the market's leasing velocity, while Eastern Fairfield's 181,000 s/f was also a strong segment. The only Fairfield submarket to lag behind was Fairfield North, which posted a mere 41,000 sq. ft. in new commitments--more than half of its normal leasing activity over the same period.

Commensurate with the strong leasing market, net absorption was at a positive 855,000 s/f in the first half of 2007. The Central submarket, home to above-average leasing and lower availability, led the market with 531,000 s/f of positive net absorption. Absorption in Greenwich was 300,000 s/f for the first half, while Stamford CBD posted absorption of 212,000 s/f, reflecting exceptional leasing activity in both submarkets. Negative absorption in Stamford Non-CBD was largely the consequence of a substantial availability coming onto the submarket during the first half: Xerox vacating its former headquarters of 255,000 s/f at 800 Long Ridge Road. As a result, Stamford Non-CBD had a negative absorption of 206,000 s/f Only one other segment posted negative absorption for the second half: the Northern submarket with negative 23,000 s/f

Nearly all Fairfield County submarkets experienced a decrease in their respective availability rates, with the exception of the Northern segment. The market's overall availability rate fell by two percentage points from last year to close the quarter at 13.3%. In Greenwich, the availability rate fell over two percentage points from this time last year to the current to 13.2%. This is a direct result of the ferocious appetite for quality space in this submarket by financial service firms. Above-average leasing activity in the Central submarket contributed to a nearly three percentage point decrease, which dropped the segment's availability rate to 11.6%. Space in Stamford Non-CBD dwindled as the submarket attracted many new leases over 10,000 sq. ft., including Greenwich Associates' 44,000 s/f at 6 High Ridge Park and CRY Capital Management's 26,000 s/f expansion at 262 Harbor Drive. This deal included a 52,000-sq.-ft. renewal. The Stamford CBD and the Northern submarkets' availability rates remained flat year-after-year.

The overall average asking rents jumped over $4.00 psf from this time last year to $32.99 psf, led by significant increases in Greenwich and Stamford CBD. Pricing increases in Greenwich were the most dramatic, representing a $32.00 change over a one year period alone.

In the Stamford CBD, rents were up $3.70 to $38.50 psf. Pricing continued its upward movement in this submarket, as most of the Class A product consists of availabilities priced at $40.00-$60.00 psf. In contrast, the Central market did not follow the trend of rent increases and ended the period at $28.37 psf, mainly due to the lack of available higher-priced Class A office space. Stamford Non-CBD, along with the Eastern and Northern submarkets have remained consistent in pricing and have served as alternatives for tenants seeking relief from the skyrocketing rents.

There was no new construction in Fairfield County during 2006. However, the Stamford CBD's office inventory is expected to increase by 6.5% or 8.2 million square feet by 2009 with the planned completion of Royal Bank of Scotland's 500,000 s/f headquarters facility, which is currently underway. Approvals are also on track for Metro Green, a 350,000 s/f planned office building right next to the Stamford Transportation Center.