The Future of Office Space in Greater New Haven

 Much has been written about the terrible effects of the pandemic on occupancy rates in major cities.  Although New Haven is a smaller city, it has reasons to hope that office space locally will not take the big hits predicted in other areas.

First of all, we don't have the same supply.  We haven't been adding to the number of office buildings the way other regions have done.  In fact, we've been taking office and turning it into residential in several cases.  Low supply always pushes up occupancy rates.

Secondly, we have been adding residential units, both condo and particularly rentals, at a fast clip over the past decade.  Luxury buildings have all filled faster than expected, and sometimes it seems that there is an unending demand.  Although some tenants commute to other cities, preferring New Haven as a place to live, most people are working or going to school here.  As that continues, it leads to a greater need for commercial space, even offices.  Obviously, it helps retail, restaurants, and service uses, but it has long been known that people try to work where they want to live.

Thirdly, our uses for office space don't line up exactly with most urban locations.  Yale is a large tenant, in addition to owning millions of square feet of space.  Biotech is a greater percentage of the for-profit sector than in most other cities, and the need for lab space and intensive collaboration means that employees can't do much of their work from home.  Those factors won't change, and that will help us fill more office/flex space going forward.

Finally, COVID has pushed many to move from dense locations to ones with more open space.  Smaller cities are thriving, and may outpace larger ones over the next few years.  New Haven, with its desirable location between NYC and Boston, may well be one that does exceptionally well.  And we're on board with that!

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.

Embrace the College Towns of Connecticut

We are fortunate to have places in Connecticut where universities drive the economy.  While Storrs was a farming community, New Haven and Hartford had industry.  As that industry leaves or automates, we can be glad that students followed.  College towns have a vibe all their own, and we should enhance it, not fight it.

Students look for a different type of retail, as well as later hours and trendier choices.  They also seek alternative housing in many cases, and have income from parents, in many cases, which extends their buying power.  We have learned in New Haven that high-end housing is affordable to many graduate students, in particular, and that those units are snapped up far more quickly than we all expected.

The same dynamics should apply to retail.  Disposable income is spent differently by demographic profile,and younger people tend to use more discretionary services. They learned from us that time is money, but they act accordingly, while we don't always do that.  Places that specialize helping others live more graciously, healthfully, or pleasantly are key to this movement, and should inform our investing and developing choices.  And the rest of us can benefit from those offerings, so we all win!

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!

New Life for New Agents

There are two types of potential commercial real estate agents that make our hearts beat faster.  The first is that person who is retiring, but with energy and a desire to do something else.  The second kind is the corporate executive who doesn't want to move away from the area, so is willing to change fields in order to stay.  There are plenty of people who don't fit into those two groups who are perfectly likely to succeed, but they don't always have the financial resources to allow for the transition, and these two types often do. 

We can tell that the real estate market is improving by the number of agents going into the business.  November marked the first time in five years that the number of members of the CT MLS system went up.  Commercial improvement tends to lag behind residential, but people seem to be looking into commercial real estate also.

We've just hired a few new people who fall into the categories we prize.  Tony Bialecki, who has been working in economic development for the City of New Haven since 1981, spending the past 13 years as Deputy Director of Economic Development, is a prime example.  Tony, who seems to be the unusual public servant who is universally loved and admired, decided to leave his job at the end of the past administration.  He began with us last month, and is off to a great start.  He has lots of knowledge, legions of contacts, and the drive and desire to master a new discipline.

Our Milford office has two recruits from the last year or so.  Dick Lombardo retired from UI after 35 years, and is eager to put his skills and network to work.  Eileen Russell had a past life in the technology field, which is incredibly helpful in the agent's role of financial analyst.

Abigail Rider, who was most recently Director for University Properties at Yale, just mailed in her license paperwork this week, and brings a host of talents in remediation, negotiation, and repurposing of properties. She is both consulting in the realm of academic real estate, and expanding to work on other kinds of commercial real estate. 

We can't wait to see what these new faces can accomplish!  And we have room for a few more....

New Haven has lowest residential vacancy rates in the country in 2013

As of the end of 2013, New Haven had the lowest apartment vacancy rate of the 79 cities followed by Reis Inc.   New Haven's vacancy rate was 2.2%, down from 2.6% one year before.  There are many reasons for this, including the large student population, especially in graduate schools, which have very little campus housing.  Also, its location on a major rail line makes New Haven a great place for people who work between New Haven and NYC to live, considering the ease of commuting and the amenities and nightlife offered in the city, particularly for young professionals.  In addition, the high cost of housing means that more people will choose to rent instead of buy, pushing up demand in the rental sector. Average rents in the area were $1154/month last year.  Hartford was the sixth tightest market in the survey.

What does this mean for commercial real estate?  Retail and office follow housing, since people living in a region demand services and often choose more convenient work environments.  In New Haven, we are seeing a major suburban employer, Alexion, moving downtown, both for the proximity to Yale and Yale Medical School, and for the benefits employees have for lunchtime and after-work dining, shopping, and entertainment.  Also, younger employees will usually choose an urban setting when possible.  Given the number of hours we all spend at work these days, having the ability to do errands or grab a meal is a plus for most people, and retail uses will prosper with higher levels of renters, especially since those renters are disproportionately clustered at the empty nester and young professional ends of the housing cycle, both of which are groups that eat out and go to events more often than suburban parents with children.  One study quoted to me claimed that approximately 30 jobs in the service sector are created for each high-income renter downtown.  New Haven still is under-retailed, according to national statistics, so this creates an opportunity for real estate investors and owners.  Please call any one of our commercial associates, if we can assist you in prospering from this market condition.

Investment Real Estate in Greater New Haven

To make money in New Haven real estate, a person needs to know that it is, at heart, a university town.  The growth is in education and health care (the latter being here in some large part because of Yale's medical school), as well as biotech (ditto the sentence above). We are disproportionately employed in the arts, again in part because of schools, and also because our highly educated workforce values the arts greatly in evaluating quality of life issues.

These factors tend to produce a population in some parts of the region that can be quite transient - students, graduate students, residents, artists, and "hired gun" executives.  At the other end of the spectrum, we have a very poor inner city area, with high rates of unemployment. Those two groups combine to produce a high need for rental properties at every price point, and contribute to New Haven having the lowest apartment vacancy rate in the country (about 1 and ½ percent).

If you've read the two preceding paragraphs, you're probably already in the market for residential investment property.  Join the club!  We have a great demand for those types of listings, and are always on the lookout for more.  New Haven now has rentals that exceed $5,000 per month for an apartment, as well as Section 8 housing (in one instance, in the same building).  Investors have a choice, therefore, about the segment of the market where they feel most comfortable.  There is also a shortage of houses for rent, and we are starting to see activity in that sector as well as the strong demand for multifamily homes that has existed, particularly near the colleges and universities.

Of course, where there are students there is also a need for restaurants, bars, retail, and health facilities, so investment property does exist in other sectors as well.  Greater New Haven is considered to be significantly "under-retailed", and 06511 is reported to be one of the nation's hottest mail-order zip codes, the theory being that the people in that part of New Haven have high incomes and not enough retail outlets to satisfy their consumption preferences.

So, whether you'd like to be a landlord, a franchisee, or simply a holder of a potentially valuable future income stream, we can find what you'd like in Greater New Haven, at any time that you think that you've had enough of entrusting your wealth to the increasingly volatile stock market.