Commercial Deals in Connecticut Are Going Forward

COVID's effect on real estate was a hot topic early in the pandemic, but the residential market clearly took off.  A combination of increased saving, low interest rates, high household formation, and desire for more space for working and distancing added up to strong demand, while lack of supply fueled the increase in prices that followed.  Although there was a dip here in the second quarter of 2020, the rest of the year, and most of this year so far, have been good ones for the industry.

But what of commercial real estate?  Uncertainly is always a huge factor in that sector, and nothing could have been more uncertain than the length and severity of the public health crisis.  While office space has continued to languish in many places, research facilities and health care needs have boomed. Distribution was already a robust area, and the pandemic caused more and more home delivery, leading to greater demand for distribution footage.

In Connecticut's cities, the increase in population has led to the building of additional rental apartments, particularly in the luxury market, and they have continued to lease well.  The latest census shows a shift from suburbs to cities over the State, with New Haven out in front.  

Homeowners and tenants always lead to more demand for retail, and, despite lockdowns and closings, this year has been no exception.  Only lack of staff has limited restaurant growth.  The most surprising fact is the desire for more retail grocery stores.  Even though people have been wanting, and waiting, to eat out, they apparently are cooking more as well.  Fairfield County especially seems to be seeing a great deal of transactions in premium stores.

If the last two years have taught us anything, they've taught us that it's hard to predict the future.  Yet, throughout it all, real estate has carved out a healthy growth rate and popularity.  And that bodes well for Connecticut's next decade.

Will The Demand for Rental Housing in New Haven Ever Stop?

 Every time a big new building is proposed for apartment development, people wonder how long it will take to fill.  The answer always seems to be:  not long.  A few years ago, New Haven was the second tightest apartment market in the country, meaning that the supply was way too small for the demand.  After that point, building after building has either been renovated or built.  Each time, there is a prediction of how that new supply will affect the rest of the market.  And, each time, the new units seem to get absorbed without much of a ripple in the rest of the pool.

One reason for this is that there is a very large number of students in our area.  Because of Yale especially, there are many who have more money that one would expect.  In addition, due to the global reach of Yale, some of those students rent sight unseen, and money is not the deciding factor.  In the past, this led to a supply of substandard student housing around each university, with the differential between good quality and bad not making much of a change in the rental amount.  That is, low supply led to high prices, relatively speaking, for bad apartments, spurred by the likelihood that they would be rented without being shown.  

The new buildings came on with the idea that empty nesters and medical residents, plus young professionals and weekday commuters, would fill them.  This underestimated the student demand from other graduate schools and even undergraduates.  It also undercounted those who work in Fairfield or Hartford counties, but commute, often by train, due to New Haven's night life and cultural opportunities.  These factors filled 360 State Street, the first of the big projects, and several more of similar size.

Now there are even newer buildings, and they are filling also.  Is this pandemic driven, with schools displacing portions of their students?  Or a change based on prices elsewhere, or increased remote working?  It's hard to say, but the estimated drop in demand for traditional multifamily hasn't occurred so far.  The dearth of single family units will also lead to more rentals, so we may not be near the end of the boom yet. There's still time to jump into the mix, and buy while rates are low.

New Haven Outperforming Other Connecticut Cities

Fairfield County, with its big corporations, is still reeling from the actual, but even more the psychological, effects of GE's move to Boston.  GE is still leaving a lot of employees in Fairfield, but both the home and office market reflect the strain.  Hartford, on the other hand, is losing Aetna after a century and a half, and other big insurance companies have moved, downsized, or merged as well.  In addition, the city itself is teetering on the brink of bankruptcy, which doesn't improve its chances to pick up new office users.

That leaves New Haven, with its startups, biotech related to Yale, and medical complex, to pick up the slack.  New Haven also has an easier time of recruiting young professionals, since there is a vibrant nightlife scene, and many residential choices, from close-in city neighborhoods to high-rise condos and apartments.  New Haven officials and developers are banking that this will continue, and the future is looking bright for that trajectory. 

Now, if only Connecticut could solve its fiscal problems, we'd be all set.  Come on, legislators, help us out here!

First Entry

Welcome to the new and improved Pearce Commercial Real Estate Website, and to my commercial blog.  While I have been blogging for a long time, this is my initial foray into exclusively commercial material.

It's always an interesting feeling to be writing in cyberspace.  You have no idea who, if anyone,  is reading what you post.  Nor do you know, unless they contact you, what they think of what you say.  That's my way of saying that I'm going to write about whatever occurs to me that I think might be useful or relevant to the potential audience, and I would be delighted to get feedback from reader about potential future topics.

By way of introduction, Pearce Commercial Real Estate covers most of Connecticut, largely excluding Litchfield and Fairfield Counties.  We do sales, leasebacks, leases, exchanges, and buyer brokerage for industrial, office, retail, and investment property.  We also have a large residential department, and joint ventures in appraisal services, insurance and mortgages.  We see the market from the "boots on the ground" level, and get enough industry material to also get the view from 10,000 feet above the ground.  I will try my best to balance those two perspectives, and hope that you will find this site useful.