Q3 2017 New Haven Office Market Report
The New Haven office market was hit with something of a bomb on September 12 when Alexion Pharmaceuticals announced it is moving its headquarters to Boston in mid-2018. The move undoes what had been the most promising economic development in the city in years – Alexion’s arrival in town in 2016 – and leaves a huge block of available office space to be filled. Alexion’s current headquarters is the 500,000-square-foot building at 100 College Street, built by developer Winstanley Enterprises and completed less than two years ago. Alexion, which got its start in New Haven in the 1990s, had been based in Cheshire since 2000. It signed a lease in 2012 for most of the College Street building and moved when it was completed, ultimately occupying the entire 13-story structure.
Alexion has placed 280,000 square feet of office space on the market for sublease with a term ending in 2030. For the time being the company plans to keep its research personnel in approximately
220,000 square feet of lab space in the building. As one would expect, the statistical fallout from this announcement was dramatic. Office vacancy citywide jumped from 14.1 to 19.3 percent. Class A vacancy increased from 19.1 to 30.3 percent. Vacancy in the Central Business District rose from 8.0 to 16.1 percent. Although most of the increase in these numbers is a result of the Alexion move, there was another contributing factor to some of them, one that would have qualified as big news for this report in a typical quarter. The medical device company Medtronic (formerly Covidien) upped its offering of sublease space at 555 Long Wharf Drive from 37,265 to 68,865 square feet. This resulted in a jump in non-CBD vacancy (a category that was unaffected by Alexion) from 21.7 to 22.9 percent.
Alexion’s move to Boston is part of a restructuring that is intended to save as much as $250 million a year and includes a 20-percent reduction in the company’s 3,000-person workforce. Over the last year the firm has been beset by a series of problems related to alleged accounting irregularities and aggressive marketing practices for its “orphan” drug Soliris, which treats rare disorders and costs more than $500,000 a year per patient. Company founder and Chief Executive Officer Leonard Bell retired in the wake of these disclosures and a further series of changes in upper-level management ensued, including the hiring of Bostonbased Ludwig Hantson as CEO early this year.
In 2014 Winstanley sold a partnership interest in 100 College Street and the nearby 300 George Street to Wexford Science and Technology, a division of BioMed Realty Trust of San Diego. The deal valued the two properties, which total just over 1 million square feet, at $308 million. Winstanley retained an equity interest and responsibility for management of the properties. Wexford has since been bought by Ventas Inc., based in Chicago.
The impact of Alexion’s move on the economics of the office market is hard to gauge. The building is best suited as executive office space for a company or companies that want to be close to Yale-New Haven Hospital – a prime consideration for Alexion when it chose the site. Yale itself is likely to take some of the space, and perhaps the quality and location of the property will do again what they did
before and pull in a big, high-quality tenant. If not, the lease-up could take a long time.