What Do Out of Town Buyers Know About New Haven That We Don't?

Investment property is hot these days--that's hardly a secret.  What is surprising is how many of the buyers are coming from somewhere else.  Even when the buyers are local, the money may be coming from another part of the country, or even the world.  Why is that happening?

Our real estate prices have been languishing in Connecticut.  Our economy has lagged behind other areas.  Even the new Governor of Virginia exhorted that Virginia should not become Connecticut in terms of job creation.  Jobs, businesses, attitude toward business, taxes--all of these things can change. What can't change is the amount of land, or its location.  That classic real estate valuation phrase--location, location, location--has never been truer than when applied to property in Connecticut.  Nestled between two huge metro areas, it only makes sense that the value of what is here would rise as prices skyrocket in Metro NYC and Metro Boston.  

Wouldn't it be a shame if the benefit of a run-up in prices in our region went to people from out of town?  Sometimes we are more negative about our area than others are, and it's likely that this is one of those occasions.  Given everything we know about the future of work, the need for a skilled workforce (where Connecticut excels), and the positivity toward business shown by the present State administration, our  future fortunes look bright.  And we should jump on them before others do.

Office Space is Filling Up Again in New Haven

 There is great interest in the few buildings that have been, or are in the process of being, built recently.  Much of that has to do with the character of new buildings.  They tend to have lab space or tech space, communal spaces for collaboration, amenities for eating and exercising, and easy commutes by bike or walking.

Density tends to improve value.  That's interesting, considering the pandemic, because it used to be that people wanted to work in buildings with wooded spaces around, and ample parking, near highway exits.  Now it seems as though just the opposite approach is warranted.  

Maybe that's not counterintuitive.  Maybe the drive toward more outdoor space at home, combined with flexible work options for telecommuting, means that people are choosing to spend their time outside near home, with work being for interacting with others, having restaurants and stores nearby, and socializing on days in the office.  While that's a big shift, it's consistent with the way we work today:  We go into an office to be with people, and, when we don't want or need that, we retreat into our homes and yards.  

That means that center cities, and advanced office spaces, will do well in the future.  Given what some pundits have been saying about the end of offices, that's good news for those of us in the industry!

Why Do Real Estate Professionals Care About State and Local Debt?

 It was recently announced that Connecticut has a debt load per taxpayer of $62,500, against an average across all states of $9300.  There are many ways to calculate debt, and to measure it versus average income, but this is a high number by any measure.  The reasons go back decades, most specifically to the 1980s, when Connecticut was flush with tax money, and many programs and benefits were instituted.  That, combined with the unusual strength of the public sectors unions in our state, left us with problems that still persist, and in some cases are getting worse.  The looming issue of State employee retirements, due to the benefit changes that begin in 2022, is leaving us, thanks to many exiting the workforce this year or next, with a much bigger roster of retired State employees, still entitled to the old package.

Why does this matter?  Ultimately, it affects property values.  The certainty of large future State expenses almost guarantees future tax increases.  Because we are not gaining population, as many other places are, the number we have to cover is not being spread over a larger group. This compounds itself as an issue, when those left to pay more decide to move out of state themselves.  For example, 37% of Connecticut's retired employees live outside of Connecticut.  So they don't pay taxes here, but get mailed checks every month.  So, to make up for that, we have put in very high estate taxes compared to other states, making older taxpayers move away even faster, since they don't want to die in Connecticut.  

This becomes a vicious cycle.  More people moving out means that taxpayers left owe more, which causes more people to move out.  You get the idea.  When fewer people stay or relocate into Connecticut, there are fewer buyers for property, making the market softer.  There are issues that go the other way, such as the fact that very little has been built over the past three decades, and that we have little land available for future construction.  COVID has actually helped us, given our open spaces and proximity to NYC and Boston.  That has caused shortages in housing and industrial real estate, for two examples, which is raising prices for those sectors.  

Within Connecticut, some cities and towns have their own debt loads that are high.  Hamden is a good example.  Taxes are higher on similar property than in surrounding towns, as Hamden struggles to reduce its debt.  Even though it is doing the right thing, there is pain for taxpayers in the solution.  It's easy to see how that scenario could play out on a statewide level.

What should you do?  Vote for fiscally responsible candidates.  Write to the ones already in office, and express your concern for added entitlements or givebacks.  Read the facts and take action as citizens.  And, above all, remember why you love living here, and work to preserve that, as well as promote Connecticut to others.  

Buyer Brokerage for Office Tenants

 Many firms have a person inside the organization who would be in charge of leasing office space. In many cases, they have a narrow range of buildings that they are considering, and most of those buildings would have leasing agents. It seems simple enough to have that person call the various leasing agents, gather information about the lease terms and availability, and compare the needs of the firm against the possibilities. 

Especially when dealing with professional firms, there can be an attitude that the real estate agent does not have much to add.  This is not usually true.  The leasing agent for the building represents the landlord, and, while s/he can show the space and prepare the lease, that falls short of everything a tenant would want to know.  Knowledge of the local market, terms common to the neighborhood, landlord concessions, and fit-up allowances are all important.  Understanding what to ask for is a key part of the leasing process. Good agents are in touch with current practices, and may be aware of going rates, even before they are published or can be used in an appraisal.  Since appraisers can only use information from closed transactions, there will always be a lag in that regard, unless an agent has another source.

Sometimes the leasing agent may also represent the tenant. If they are in formal relationships with both, that is called dual agency.  It must be disclosed, and agreed to, by all parties.  It is not uncommon, but having a written agreement means that there is a fiduciary duty to both sides.  Although that duty exists, it is still the norm that the landlord would pay the commissions, even for the buyer's agent.  When that is true, the tenants are receiving help and information that is not costing them anything.  

More on that last point:  Could you negotiate a better deal, if you had no agent who had to be paid?  That is a commonly held belief, but it's important to realize that, without agents, both sides expect to save money. Whether or not it happens is subject to negotiation, but it would be naive to think that the tenant would get all the savings.  Even if they did, they might pay more for the space because of scarce knowledge of the going rates, concessions, and fit-up allowances.

In some ways, it can be akin to the advantage of using a good travel agent.  You still pay the advertised rate for your trip, but you get the benefit of added background, and the commission is paid by the vendor or venue.  In fact, you may well do better with the travel agent involved, especially if you need to negotiate terms or changes.  Think of that when you consider a new office lease.  To use a real estate professional or not?  The answer should be clear.

Will Offices Rebound?

 While we know that the future of office working is uncertain in the short run, and we suspect that the long term will bring more flexible schedules, there is still reason for hope for office use and demand. 

 We have never had so many people in our country working from home, and yet employees in general seem more unhappy than they have ever been.  Some of the malaise clearly has to do with COVID, and what that has done to people's lives.  But, when we examine that statement more closely, what we know is that many workers--and retirees as well--miss the interaction with others that they used to find in their places of work.  

Not just connection, but collaboration--working on projects, receiving input, brainstorming--has been missing as well.  Some parts of work just can't be done alone, or at least can't be done as well.  The social aspects of sharing office space seem obvious, and hard to replace.  The sense of ease you do or don't have with coworkers comes from interaction, and not many have had much of that lately.  That makes us think that offices aren't dead yet.  Although dressing up (and that may not come back anyway) and commuting (but think coffee and podcasts, plus a separation between work and home) may not be something everyone looks forward to, the intangibles of sharing space may win out, at least part of the time.

Then there's the social distance issue.  Even if fewer people are in an office at any given time, they each may need more space, or more privacy, or both.  It could turn out that half as many people take up just as much square footage, so downsizing may not take place the way we once thought it might.  

For lots of reasons, don't count the office sector out just yet.  Let's just wait and see.  Community takes all kinds of shapes, and coworking is one of them.