The city of Stamford is bullish on building. But first it has to work through a big problem: a surge in high-end office vacancies.
At the end of 2016’s third quarter, the availability rate for commercial space in Stamford’s central business district hit 31.7 percent, according to data from CBRE. That’s up from 24.9 percent the previous year, and almost double the availability rate in Stamford’s neighbor Greenwich.
Blame the 2008 financial crisis — even now. Long-running consolidations and reductions in the financial sector have hit the city’s downtown hard. And Stamford’s vacancy problem has a primary culprit in the form of a 720,000-square-foot office building once occupied by Swiss banking giant UBS that is now empty.
UBS first came to Stamford 20 years ago and at its height had 4,200 employees in the city. But it has had to pare back in a big way as the lingering effects of the financial collapse and other setbacks have drained its coffers. UBS no longer needs the office building in downtown Stamford that once housed one of the world’s largest trading floors. Despite a lease on the building through the end of 2017, UBS recently moved its remaining employees across the street, absorbing 120,000 square feet of space in the office complex of RBS, a Scottish bank that has been on a layoff binge of its own.
The move just became official, but it has long been expected. “We’ve known UBS was going to leave for three or four years now,” said Jim Fagan, managing principal at Cushman & Wakefield in Stamford. “It’s been an accident in slow motion.”
Mopping up the mess
Cleaning up that accident is going to take some hard work. Real estate aficionados see the need for fundamental changes in Stamford’s business ecosystem in order to attract top developers and continue growth.
“We have to wean ourselves from the financial services sector,” said Tom Pajolek, executive vice president at CBRE’s Stamford branch. “For many years, between RBS, UBS, GenRe and GE Capital, we’ve been very dependent on them,” he said. The challenge, he added, is to incentivize “new companies — digital companies, today’s companies — to come to Stamford and realize the potential it has from a locational and cultural standpoint.”
Examples of the city’s future new frontier, Pajolek said, include the online job board Indeed, which has headquarters downtown and will soon add more than 100,000 square feet of space and grow its Stamford workforce to 750. Another is the consumer products company Henkel, which Pajolek said will soon move to Stamford from Scottsdale, Arizona.
Another promising sign is the steadily increasing average asking rent in Stamford’s central business district, which is at $43.41 per square foot, up 11 percent since the brunt of the recession hit in 2008.
As positive as these developments might appear, they are part of a slow yet steady shift that will take a long time to make up for the loss of the behemoth banks.
“There’s a transition happening,” said Pajolek. “The financial services (companies) have left us with some large blocks, and the velocity of deals and activity in the market tend to be smaller deals. So there’s vibrancy in the smaller spaces, but not necessarily with the larger ones.”
A man on a mission
Bringing new companies to Stamford is Thomas Madden’s full-time job. As the city’s director of economic development, he works with companies such as Indeed and Henkel, as well as other small employers. Madden is confident that the vacancy rate — currently at 21.3 percent, since the UBS building is available but not technically vacant at this time — will drop in the next few months. But it’s going to take a lot of work to bring vacancy down to about 15 or 16 percent, where he’d like to see it, once the big bump of the UBS space is factored in.
Madden is thinking small for Stamford’s future. “For us to get there, what we’re looking at isn’t the big employers. We’re focusing on little guys, working with a capital company with major funding who expects to move 35 people to Stamford and be up to 70 people by next year, and 400 in four years,” he said.
That’s not to say he’s ruling out major corporations. Both Apple and Google have looked at the UBS property, he said, along with other “major companies” that could quickly solve downtown’s vacancy woes with a lease.
Pajolek said it’s going to take one of those big companies to create the spark that reawakens building in Stamford’s office market. “When and if a commitment is made by a significant tenant, that’s when the cranes will come back and they’ll begin building offices again,” he said.
A garage to offer — to the right tenant
Developers are anxiously awaiting that opportunity. Building and Land Technology (BLT), the company responsible for redeveloping Stamford’s entire South End, is poised to add another tower — or two — to the skyline near the train station. The city has granted the company approval to build 500,000 square feet of commercial space and 250,000 square feet of residential space atop its subterranean parking garage, which connects to the station. They just need a tenant.
“Because we built the garage already, we’re ready to go. We could deliver a building in 18 months for the right tenant,” Ted Ferrarone, BLT’s chief operating officer, said of the property at 406 Washington Boulevard.
BLT isn’t the only developer itching to build within a stone’s throw of UBS. Malkin Properties has had the green light for several years to build a 385,000-square-foot office tower next to its existing 810,000-square-foot property a block from the train station, but has not yet pulled the trigger.
While office developments are waiting for the right time, the city’s residential stock is growing exponentially. At 75 Tresser Boulevard, a high-end apartment building catty-corner to the vacated UBS headquarters, 342 of 344 units were leased at the end of the third quarter, according to Halstead Property. Before the luxury units were brought online at the end of 2014, the parcel was historically known as a commercial property, most notably as the longtime home of the city’s newspaper, the Stamford Advocate.
Industrial buildings and millennial renters
That transformation — corporate structures being razed or reimagined as chic mid- and high-rises that will attract millennials — is playing out all over Stamford right now. “If you think about Yale & Towne, it was strictly an industrial area,” Ferrarone said of the portion of the South End where the historic Yale lock factory, which earned Stamford the nickname “Lock City,” once stood. His company has built 1,100 residential units there since 2013, boasting occupancy rates around 90 percent.
And that’s important. “The key indicator that shows Stamford’s potential is the fact that all these apartment buildings have been built and the vacancy rate is very, very low,” said Pajolek. “Companies are quite often moving to where the talent is, and we have an attractive housing base that’s been created, attracting millennials.”
Stamford is the fastest-growing municipality in Connecticut and millennials are driving a large part of the city’s growth. Between 2010 and 2015, Census data shows that the number of 20- to 34-year-olds in Stamford grew by 10.7 percent, as young professionals flocked to the city — more than double the 4.9 percent increase in the city’s total population during that time.
It’s a silver lining that Stamford’s boosters are quick to tout. “The people in the downtown have a median income of $108,000, which is $20,000 more than the median income in Fairfield County or the state, so that’s a lot of disposable income,” said Sandy Goldstein, president of Stamford’s Downtown Special Services District and queen of the city’s bright side. “And they’re millennials. They’re young, they party. They patronize other businesses,” she continued.
Goldstein loves that demographic. And more importantly, so do employers.
“Employers want to locate in places where their employees want to be,” said Ferrarone. “The No. 1 concern for employers is access to talent.” He noted that in addition to trendy housing, his company has also leased new spaces to hot restaurants, high-end gyms and other amenities that have helped turn Stamford into a go-to spot among young professionals. He hopes these amenities, along with the homes his company continues to build throughout Stamford, will help lure businesses to town, spurring demand for BLT to in turn build more office space. It’s a big wager, but he’s not the only one betting on Stamford.
Fagan from Cushman Wakefield summed it up with a question: “Is Stamford enmeshed in a waiting game that they’re not going to win, or is it the next super cool place to be?”
He picked the latter. “I’m kind of betting on the fact that it is a super cool place to be, and that people are going to want to come to Stamford.”