Insignia: Expansions fuel strong first half for Fairfield market.

Fueled by unprecedented business expansions within the county, the Fairfield County office market finished the first half of 2000 with big gains in leasing activity and net absorption, further tightening an already space-restricted office market and driving midyear availability rates to record lows.

According to the Insignia/ESG Midyear Commercial Report, more than 3 million square feet of office space was leased in the county over the past six months, a 37% gain from the same period a year ago. Net absorption countywide soared to more than 1.8 million square feet, an extraordinary reversal from 507,680 square feet of negative absorption of in the first half of 1999. As a result, the supply of available office space in Fairfield fell more than 30% over the past 12 months to 3.7 million square feet and the availability rate Shrank almost four percentage points From midyear 1999 to a record low of 8.4%

According to Dean J. Shapiro, executive director of Insignia/ESG's Westchester-Connecticut office, "The results for the first half of 2000 truly testify to the fundamental strength and vitality of the Fairfield County economy, as well as its growing self-sufficiency. Barely a year after it was hit with more than 400,000 square feet of vacated space, the office market has staged a remarkable recovery and positioned itself for yet another record-breaking year. With few exceptions, nearly every area is enjoying the fruits of the boom."

While several large transactions took place in the county during the first half of the year, including Priceline.com's 122,000 square feet in Greenwich and Microcast, Inc.'s 92,050 square feet in Danbury, leading velocity was marked by an increase in mid-sized transactions. Deals totaling between 10,000 and 50,000 square feet accounted for more than 45% of the overall leasing year-to-date, while demand for the same units accounted for just 30% of last year's activity. As a result, the average size lease at midyear measured 10,434 square feet, up more than 12% from 9,283 feet 12 months ago.

Although the retention and expansion of major firms benefit the county's economic strength and prosperity, their recent proliferation has brought about a growing crisis in the office market's ability to accommodate further growth. Mr. Shapiro noted that large blocks of contiguous space in existing buildings are nearly impossible to find in Lower Fairfield County. Downtown Stamford, especially, is experiencing dire conditions - accommodations larger than 100,000 square feet in existing building are completely void. This situation may change quite rapidly, however, in the near future. The recent merger of International Paper and Champion International has led to speculation that a large amount of space may become available at Champion's headquarters in downtown Stamford. "Up until recently, this news would have been greeted with anxiety; today, however, brokers and tenants alike feel a sense of relief that some high quality space may soon be available in a market where vacancy in prime buildings is far below e quilibrium," said Mr. Shapiro.

Interestingly, smaller Stamford and Greenwich tenants also have difficulty finding space in prime buildings, and when they do, they encounter rents that resemble Manhattan more than Connecticut. In some choice properties in Greenwich, particularly, landlords have achieve rents exceeding $60,00 per square foot - one reinsurance company recently signed a lease for space at Greenwich Plaza at a price considered the highest rent ever agreed to for a large deal in Fairfield County. The countywide average asking rental, though, is far more affordable: the current $26.28 per square foot is $1.86 per square foot higher than June a year ago. Asking rents ranged from $18.97 per square foot in the Fairfield North submarket to $32.10 per square foot in Fairfield West.

While Stamford's leasing activity fell slightly from last year's level, the city has the tightest overall conditions of any submarket in Fairfield County. By midyear, the city's availability rate had declined nearly three percentage points from a year ago to 6.5% -- the lowest rate in more than a decade. For Class A space, availability totals just 5% of the inventory. Leasing in Stamford totaled more than 1 million square feet in the first six months of 2000, while absorption was a solid 566,210 square feet, about 6% higher than a year ago. The average asking rental in Stamford rose nearly $2.50 per square foot to $29.31 per square foot, with some select buildings commanding rents as high as $40.00 per square foot. Major lease transactions in the Stamford market included Amdocs Ltd.'s 80,450 square feet at 9 West Broad Street, Westvaco's 73,610 square feet at 1 High Ridge Park and iSolve.com's 52,770 square feet at Four Stamford Plaza.

Mr. Shapiro said the strong demand for office space is not limited to Stamford, noting that the former Caldor's headquarters at 20 Glover Avenue in Norwalk, left vacant last year following the company's bankruptcy, is now almost fully leased. New construction is also being swallowed up quickly as it appears, evidenced by the success of 20 Westport Road, a 335,000 square foot office building under construction in Wilton that is 71% pre-leased to tenants including New America Marketing.

The Fairfield West submarket, in fact, where may of these properties are located, led the market in many categories - a major reversal from the end of last year when low returns of space and slow leasing gave it one of the worst outcomes of that year. With 1.2 million square feet leased thus far this year, this submarket more than doubled the amount of space leased within its boundaries in the first half of 1999 and surpassed all other areas in Fairfield. Among those transactions completed in this segment so far this year were five of the county's ten largest lease transactions: Priceline.com's 122,000 square feet at Greenwich American Center in Greenwich, Peppers and Rogers Group's 83,3000 square feet at 20 Glover Avenue in Norwalk; Partner Reinsurance's 75,000 square feet at 1 Greenwich Plaza in Greenwich; GE Capital's 71,210 square feet at 401 Merritt 7 in Norwalk and Mercator Software's 60,000 square feet at 10 Westport Road in Wilton. The segment also saw the most positive net absorption in the county a t 811,750 square feet, a reversal from 670,850 square feet of negative absorptions a year ago. In total, activity in the West accounted for 40% of the county's velocity and 45% of all absorption for the year. As a result, its availability rate fell nearly five percentage points from midyear 1999 to 10%.

The success of the former Caldor's headquarters at 20 Glover Avenue, while clearly a testament to the strength of the Fairfield market, also served as a confidence booster for key market players. The Davis Companies, in particular, considered the leasing of that totally vacant building inspiration enough to acquire PU Corporations' former headquarters complex at 50 Danbury Road in Wilton. The sale of this 262,000 square foot campus is particularly notable because the complex will be mostly vacant as of May 2001. The Davis Companies is actively marketing it for multi-tenant use while it undergoes a major renovation program.

Less expensive housing and traffic congestion continue to make this market a popular choice for companies in Fairfield County. So far in 2000, this submarket has seen 602,100 square feet leased - a 41% increase over the same period a year ago - and absorption of 285,590 square feet - a rebound from a negative 329,320 square feet for the first half of 1999. Availabilities that resulted From the new construction of 1999 had Little lasting effect on the East's availability rate, which fell more than four percentage points from a year ago to 8.4% - the second lowest rate of any submarket in the county. As space options tightened, rents edged higher in the East, with the average asking rate at $20.13 per square foot, a rise of almost $1.00 from a year ago. Among the companies signing major leases in this market were NeuVis, Inc, which took 64,570 square feet at 6 Armstrong Road in Shelton; Staple Communications, which leased 47,100 square feet at Reservoir Corporate Center in Shelton, and Shopping4sire.com, Inc., which took 38,200 square feet at 6 Cambridge Drive in Trumbull.

The usually quiet Fairfield North segment showed improvement on may fronts during the past six months, due primarily to the completion of Microcast, Inc.'s 92,050 square foot transaction at 33 Turner Road. In total, more than 171,450 square feet of space was leased in the segment in the first six months - a 5% increase over the same period a year ago - an approximately 158,180 square feet of space was absorbed, compared with a negative absorption of 42,930 square feet at midyear 1999. As a result, the segment's availability rate at midyear was more than four percentage points lower at 11% than June 1999. Nearly 90% of all leasing in the North occurred in Class A space, causing the average asking rent to fall nearly 2% from last year to $18.97 per square foot.

The Insignia/ESG Midyear Commercial Report surveyed 487 multi-tenant Class A and B buildings in Fairfield County. Government-owned and occupied buildings, medial office buildings and buildings under 20,000 square feet were excluded.