No one in ritzy Greenwich, Conn., is losing sleep over RBS Greenwich Capital’s relocation to Stamford. In fact, the financial services firm’s move may be a blessing for the city, because it frees up 160,000 square feet of space in a market where vacancy in the central business district is nearly zero.
“We believe RBS’ departure will have a positive impact on the market since a meaningful amount of Class A waterfront office space will be available for the first time in 15 years,” said David Hoffman, executive managing director at Colliers ABR. “There appears to be more than enough pent-up demand from existing and incoming tenants to fill the void.”
Most market reports put the mostly residential city’s office vacancy rate somewhere between 13.8 percent and 15.9 percent, but the numbers belie the market’s actual condition. All of the vacancy lies outside of the tony suburb’s central business district, and nearly all of it lies within two empty buildings: 1700 East Putnam Avenue and 1 American Lane, both in northern Greenwich.
“To talk about Greenwich in totality is difficult,” said David Block, first vice president at CB Richard Ellis, because the town itself is an amalgamation of colonial era villages, spreading its small business districts over 50 square miles. “There are two distinct segments of Greenwich, the central business district and the non-central business district. Both have completely different fundamentals.”
Because of its proximity to Greenwich Avenue retail and the train station that feeds into New York City, 30 miles away, the central business district is the most highly coveted area of the market. Most of the main tenants looking for space are smaller financial institutions like hedge funds, asset management companies, and private equity firms.
To illustrate his point, Block noted that at the end of the third quarter of 2005, the central business district’s availability rate was 5.3 percent versus 21.1 percent in the non-central business district, with a nearly 40 percent gap in average asking rents. Central business district rents command $65.05 per square foot, and rents outside that area are much lower at $39.61 per square foot.
“The Greenwich central business district is drum tight and will continue to stay that way,” said Jeffrey Newman, executive vice president at W& Properties. “Whenever the market loses someone up the line, there is always someone coming in.”
With no new development on the horizon given the city’s wetland restrictions and the lack of developable sites, users have little choice but to bend backward in this landlord’s market. The central business district is about 350,000 square feet smaller than the non-central business district, which spans about 2.4 million square feet.
Antares Real Estate Services signed the largest leases in the market last year at Pickwick Plaza, a 240,000-square-foot Class A building close to the commuter train station. General Atlantic Partners took 40,000 square feet and Interactive Brokers took 64,000 square feet in a building that commands rents between the mid $70s and $80s per square foot.
“We maintain a substantial waitlist of tenants for the building,” said Joseph Beninati, managing partner and co-founder of Greenwich-based Antares. “Even the Class B buildings are in the $50s and low $60s gross rent.”
Because of the tight fundamentals, Greenwich is an enviable market for owners. Although investment sales occur infrequently due to the limited amount of product, the last 18 months did see two major office acquisitions.
At the end of 2004, National Office Property Investors, a joint venture between Hines and the California Public Employees Retirement System, the largest public pension in the country, sold 55 Railroad Avenue for $97 million to a partnership between the Willett Cos. and Warren & Partners of Dublin, Ireland.
Last June, the Willett Cos. teamed up with Warren & Partners and Hines to acquire 33 Benedict Place for $87.5 million. The 120,000-square-foot building was owned and occupied by Unilever, which will remain in the building. Both transactions topped $700 per square foot.
“Long term, [Greenwich] is a very good place to own real estate,” Newman said. But he cautioned that the tenant base is becoming increasingly one-dimensional and could spell trouble if the finance industry, especially hedge funds, experiences a slowdown.
Newman’s bet, like many others in the real estate industry, is on the larger neighboring city of Stamford, a more developed commercial market where Class A office rents average in the mid $30s and that has long been home to corporate headquarters and financial services firms like UBS and RBS.
“Stamford is a good alternative to Greenwich,” Newman said, “and will receive positive spillover activity.”