Commercial Real Estate and Office Space Market in Connecticut
As one of the wealthiest and most densely populated states in the USA, Connecticut is home to a bustling and diverse economy mainly underpinned by office-based industry sectors, such as finance, insurance, and professional and technical services. Manufacturing, construction, and retail and wholesale trade are other key industries that are closely linked to the status of the local commercial property market (1). This report provides an overview of this real estate market sub-sector and of its most recent performance.
Office Space Market
Following a drop in unemployment rates, the office market in Connecticut's capital city has experienced a modest increase in its average rental prices, which averaged $20.12 / sq ft during the second quarter of 2015. Activity levels were on the rise in Hartford's CBD, an area that has attracted significant investment over the past year. Important tenants in Hartford include companies in the technology, finance, education, and communications sectors (2). Another recent trend worth mentioning is the continued expansion of leasing activity into the city's suburbs as a result of reduced availability in core districts. Due to the limited supply of Class A space in the city centre, rental values have been marked by a steady increase in fringe locations like eastern and northern Hartford (3).
The New Haven office market has been traditionally less susceptible to fluctuations in terms of prices and transaction levels. The trend remains in place, although market analysts at Cushman & Wakefield have drawn attention to the declining vacancy rates and to rising leasing activity levels, which relate to properties both in the CBD and in peripheral areas. Average direct asking prices in the CBD stand at $21.45 / sq ft (4).
In Stamford and around the Fairfield county area, the office real estate market has recently experienced a slight decrease in activity levels, going down to 20.8 per cent during the first quarter of 2015. Average rental values for office properties across the county have also decreased, averaging $35.19 / sq ft in early 2015. According to CBRE, the majority of transactions in this area have been the result of relocation and expansion activities coming from tenants involved in business services and hospitality (5).
Click here for office space in Greenwich, Hartford and Stamford.
Retail and Industrial Markets
Hartford is a lively retail hub where vacancy rates dropped by five percentage points between 2012 and 2014. Increased demand for retail space in Hartford has come primarily from the leisure and entertainment sector, especially in districts like Ellington, Windsor, and Enfield where demand for restaurant and shop space is higher than in the rest of the county. Vacancy rates remain high for retail floorspace of under 2,500 square feet (6).
Stamford is the state's second largest retail centre and has a total retail stock of nearly 2 million square feet. Healthy demand levels have been observed for properties along the I-95 corridor, especially with regards to medium-sized retail units of up to 7,000 square feet. On the other hand, vacancy rates for retail properties remain mostly unchanged in New Haven, where they average 12.7 per cent (7). Demand is at its highest along the Whalley Avenue Corridor, although it has certainly slowed down since the robust growth levels experienced between 2000 and 2008.
Tax Breaks, Business Incentives and Support
For several decades, Connecticut was known for having one of the least favorable corporate tax systems in the United States. This inevitably had a detrimental effect on the local industry base, since at some point as many as 70 per cent of business owners affirmed that the state's taxation system did not support their corporate goals (8). More recently, efforts have been made to address and counterbalance this issue and to help local businesses benefit from the state's infrastructure and potential for growth. Nowadays, the commercial real estate market in Connecticut is supported by a diverse and forward-looking business community that benefits from tax incentives and other schemes designed to help businesses get established in the local community. Some noteworthy initiatives include:
- The Connecticut Enterprise Zone Program, a state-wide initiative that offers business owners tax abatements on commercial property that can reach up to 80 per cent over a five-year period. Under this program, certain businesses may also benefit from tax credits ranging between 25 and 50 per cent, which can applied to corporate business tax rates (9).
- The Tax Incentive Development Program offers tax abatements to Bridgeport-based firms who wish to make improvements to their commercial properties (10).
- Financial Services Tax Credit, which can be applied by certain financial institutions against the cost of real estate development (11).
In addition, tax exemptions are available to eligible companies involved in insurance and manufacturing and to business expenses that may arise from the use and production of clean energies (12).