Article published in New England Real Estate Journal by Richard H. Coote, Principal, The Wm. M. Hotchkiss Company
Like any historically stable environment, the New Haven County office market continues to stay strong at the core while realizing nominal changes at its periphery. The market’s bread and butter industry stalwarts of education, legal, and medical waiver only slightly, while the local economy alters the shoulder areas of bio-tech and general business.
The market continues at an overall vacancy rate of 12-15%. New Haven saw added inventory in the early 2000’s, a trend largely halted in the last 24 months. Instead, the future available inventory may well be shaped by changes in use such as by new owners at 205 Church Street where it is rumored that the venerable grand dame of New Haven’s high rise buildings is being considered for residential use.
Like so many small cities which have developed only as market needs have changed versus as a bi- product of a master plan, New Haven too struggles with infrastructure short falls. Look no further than the Pearl Harbor Memorial Bridge which serves as the gateway to the city. Slated for ten years of construction upgrades, small business owners and their employees may be motivated to set up shop in the surrounding shoreline or northern communities. Combine this with a continued lack of accessible parking and increasing costs of operation including a new tax assessment, and understand why downtown New Haven will be hard pressed to significantly lower vacancy rates in the short term.
Still, New Haven clearly exudes the excitement of an urban hot spot where continually evolving entertainment and retail venues support an always culturally rich life style for its business tenants. Never in recent history have there been more reasons for business people to remain in the city long after the workday ends and to reinvest their disposable income in New Haven’s future. The inherent benefits of this monetary cycle are bound to be realized more and more by New Haven’s landlords, who may not see dramatic changes in occupancy but who should be buoyed by a local economy capable of and willing to pay increasing rents.
Unmeasured to date, is the ripple effect that skyrocketing electric rates will have on the downtown New Haven area. Clearly tenants and building owners alike have already been impacted by the unparalleled, United Illuminating Company 40-80% rate hike imposed January 1st of this year. Landlords have had to scramble to find alternate providers of electricity in an effort to cushion the blow, but ultimately even deregulation will not provide significant mitigation to huge increases in electricity expense. Undoubtedly these spiraling costs will force landlords to evaluate all energy saving tools available to them for their facilities. Equally predictable will be the propensity on behalf of the increasingly educated tenant to seek out energy friendly office space when comparing overall lease costs.
Downtown New Haven’s office market future is highly dependent on the growth requirements of its current occupants versus the addition of new businesses. The often repeated chorus of “As Yale goes, so goes New Haven” continues to ring clear as the university’s increased administrative requirements continue to offset measured departure from the market caused by downsizing and mergers. The city with its trio of court houses and law school ties continues to attract out of town law firms while offering fertile surroundings for its incumbents to grow. So often New Haven’s business tenants are somehow either directly or indirectly tied to Yale University or its hospital. It is understandable therefore to appreciate how the market’s internal growth continues in correlation to the dynamics of the Yale community. Yale University through its extensive endowments will always be the single greatest catalyst to the New Haven commercial market. Yale leases a great deal of office space throughout the city and their need for selectively placed venues for themselves and their affiliates will continue. The strategic growth on behalf of Yale and the other numerous area colleges generally fortifies lease rates across the commercial sector while increasing demand in adjacent areas.
Available medical office space at the “A” level where contiguous to Yale and St. Raphael Hospitals is virtually non existent. “B” class space is available, but typically offers vacancy rates commensurate with facility condition and parking availability. High occupancy levels are driven by lack of available space rather than by increasing demand. In reality, reduced medical insurance reimbursements have forced many formerly prominent practices to consolidate.
In the surrounding shoreline and northern towns of New Haven County, older, small office buildings are being “replaced” with newer, convenient, more technologically advanced facilities. With vacancy rates ranging from 20-30%, landlords and developers have come to realize the importance of building amenities in this competitive market. Accessibility, as a key consideration for an aging population, is blatantly evident with the successful development of a number of medical office buildings in the Branford, Guilford, and Madison areas. Lack of affordable and desirable building sites makes barrier to entry for continued development significant, but highway congestion and downtown parking constrictions will always bode well for the suburban office market.
The New Haven County office market is poised to continue its steady, long term economic success offering many exciting reasons for its current commercial tenants to grow and prosper. For newcomers the Elm City has elevated itself to a vibrant, convenient, and affordable alternative to Fairfield County and to many other Connecticut cities making it a very attractive place to do business.
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