Downtown Leasing Picks Up

A strong leasing performance in downtown Class A buildings resulted in a modest statistical improvement for the New Haven office market during the 1st Quarter. With CBD Class A vacancy falling from 11.7 to 9.5 percent, the city’s overall vacancy rate improved by 30 basis points, ending at 13.6 percent.

Much of the leasing took place at 157 Church Street, also known as Connecticut Financial Center, which manages for the most part to float above the fray of a generally competitive market for tenants. Entities of the federal government and Yale University combined to absorb about 20,000 square feet in the building over the last three months. While landlords in other properties considered Class A by New Haven standards are making deals at rents in the low $20s per square foot – in some cases even in the teens – 157 Church Street sometimes commands close to $40 (albeit with generous contributions toward tenant improvements).

Only a few years back, when United Illuminating was getting ready to move most of its managerial and administrative functions out of Financial Center to a new headquarters in Orange, it looked as
though the Chase family, the building’s owners, might have a hard time refinancing their $130 million mortgage. That threat passed, however, largely due to the building’s appeal to high-end tenants,
and the property is back on solid financial footing.

While they may not command the rents tenants are paying at 157 Church Street, other Class A buildings downtown are doing just fine. A good example is 195 Church Street, the former home of
New Haven Savings Bank, which was purchased in late 2015 by the local investor and developer Paul Denz. At the time of that sale, about 80,000 of the building’s 245,000 square feet was vacant.
Now, after a renovation and a substantial increase in the asking rent, about 60,000 square feet remains available and the building’s leasing agents say they’re seeing a high level of interest from prospective tenants. Also doing well is 900 Chapel Street, where two leases totaling 18,000 square feet are pending. It should be noted, though, that these buildings’ current owners bought them for well below replacement cost. Current rents are far shy of what would be needed to justify the cost of new construction.

This leasing activity has resulted over the last year in a fairly remarkable drop in the vacancy rate for Class A buildings in the Central Business District -- from 13.5 percent in the 1st Quarter of 2016
(and 14.4 percent in 2Q 16) to 9.5 percent today. For the first time since late 2015, when Frontier Communications vacated a large block of space at Long Wharf Maritime Center, the overall Class A
vacancy rate for the city has dropped below 20 percent. Meanwhile, there has been some slippage in the Class B market, especially among those buildings outside the CBD. A year ago, the downtown vacancy rate for Class B buildings was 4.1 percent; now it is 5.9 percent. Overall, Class B vacancy for the city has climbed from 6.0 percent in 1Q 16 to 8.4 percent today.