Until recently, the priciest office space in Stamford was located in buildings near highways or offices located in park-like campuses. The inner-city office market, which has about 8 million square feet of office space, wasn’t exactly depressed, but it wasn’t flourishing either.
Yet in the last few years the central Stamford market has bucked that trend, and the space situated near the downtown train station is seeing increased demand.
Some brokers call it the public transport premium. The same dynamic that allows landlords of properties near, say, Grand Central Station to lease space faster and for more money is at work in suburban Connecticut. Indeed in the last year Stamford’s Central Business District has emerged into an increasingly valuable submarket, one with stronger leasing velocity and higher rents than the rest of Stamford.
Building owners are capitalizing on improving fundamentals.
“I always advise my customers to buy near a train station,” said Tom Pajolek, senior vice president at CB Richard Ellis in Stamford. “Vacancies are always less, and historically some of the highest quality buildings have been in walking distance of the [Stamford] train station.”
Rents in Stamford’s Class A space in the central business district these days average $38.46 per square foot. That’s up nearly $5 in the past year, nearly double the increase seen in the office parks. Offices campuses are commanding an average of $30.86 per square foot, up $2.79 from last year.
The vacancy rate in downtown Stamford is tighter, too. This time last year the overall vacancy rate was 19.5 percent. At the end of the second quarter of 2007, the downtown vacancy rate was 15.26 percent. In Stamford’s non-CBD, the vacancy rate presently sits at 17.46 percent.
Rents in Greenwich’s central business district have also seen a big jump last year relative to its more far-flung office parks. The district, which possesses 2.3 million square feet of space and is sometimes depicted as Stamford’s cross-state rival, has seen average rents nearly double in the last year, from $65 per square foot to $111.12, according to CB Richard Ellis. In the second quarter of 2007, the average asking rent in Greenwich office parks was $46.26, up from $43.62.
Several reasons exist for the prosperity of Stamford’s central business district. First and foremost, Stamford has recently been drawing a lot of financial service firms deliberately choosing to locate in the suburbs rather than in Manhattan. On top of UBS, which moved its U.S. headquarters here in 2006, the Royal Bank of Scotland, the Bank of Ireland and a bevy of hedge funds have all set up shop and signed big leases in the past year. Indeed, about 2 million square feet have been leased in the first half of 2007, and 39 percent of that represents new leases.
“We’ve noticed an increase in leasing activity, the majority being financial companies opening Connecticut offices or moving from New York City or Greenwich,” said Margaret Carlson, leasing director of Equity Office Properties, owner of several buildings near the train station. “Rents are being pushed higher and concessions are diminishing, such as free rent. We’re now charging for parking.”
Secondly, the business district is located within Stamford’s Enterprise Zone. The zone is a kind of inner-city tax haven, and locating there grants tenants tax abatements that allow them to save between $3.25 and $4 per square foot in annual rental payments, according to brokers.
With all those new financial services office openings, the city continues to draw record numbers of reverse commuters, further fueling economic activity in the area. Between Monday and Friday nearly 5,000 Metro-North commuters come and go to Stamford, up from about 2,000 a decade ago. Riders say that morning trains departing Grand Central for Stamford are as busy trains arriving into Manhattan.
Finally, nearly all the office space in nearby Greenwich, seen by many hedge funds as a more desirable location for their headquarters, is already leased.
“If the hedge funds didn’t exist, then this wouldn’t be happening in Stamford. These are types of tenants who are willing to pay more for space simply because they can, and they’re frustrated by the lack of space in Greenwich.” said Jeff Gage, senior vice president of the Ashforth Company, a company that owns commercial property in the area. “They’d be willing to go to Greenwich and pay twice as much for space, but they have no other options now.”