What's Happening in Greater New Haven Commercial Real Estate?

As has been stated so many times, this is a year like no other. Real estate, like every other sector of the economy, has been impacted by the pandemic, but it hasn't been all bad. Industrial real estate, and anything that can be used for distribution, has been doing very well in an era of home delivery. Not only did Amazon open a big facility in North Haven, they are also gobbling up property in Orange, for their Last Mile project. Investors who thought ahead have been buying up property that might be used by Amazon, or suppliers to Amazon, and this includes both local and national investors. Investment real estate, in the form of multifamily, has taken somewhat of a rent hit with the closing of colleges and universities, but the occupancy rate in the region is still high. Again, both local and out-of-town buyers have been active in our local market. Volatility in the stock market always helps investment real estate. In addition, people who work in NYC and its environs can easily come up as far as our region now, since most workers don't have to go into an office every day. Speaking of offices, the trend to use less space for office has continued. Now it may be less about open work space, and more about the lack of use of all space over the past nine months. That is making tenants re-evaluate how much square footage they really need. In one recent example, a firm that has been largely remote is rethinking a smaller floor plan, because of file storage. Once you have to make a trip somewhere to look through files, there's no real advantage to paying for Class A space to have them next to your desk at work. For a far lower cost, those files can be stored off site. We expect telecommuting, at least some of the time, to continue, and those who don't need to commute will take more residential space, further boosting the residential and investment sectors. That leaves retail, the weakest of the four. While drive throughs and pick up locations are doing well, restaurants, hotels, and bars are clearly not. While they should eventually come back, some of them won't make it, and some will have less margin for rent. Entertainment is a steady driver in most economic conditions, but this one is an outlier. There are a lot of signs out there, and they won't all go away soon. It means that landlords may have to give more incentives, and perhaps take lower rates, at least until the recovery is well underway. Connecticut, and Greater New Haven, have both been fortunate in being ahead of the national market in real estate, due to lagging past performance. If that continues, we can expect a good year next year. All the new sheltering New Yorkers should boost retail, investment, and even office, and their purchases will fill all that distribution space. For those of us in the real estate industry, there's our silver lining.

Got Warehouses?

The Town of Trumbull just announced a big warehouse deal by Amazon, who is opening a facility in North Haven also.  Given our proximity to rail, water, NYC, and Boston, we are in demand as a region in an economy of delivery.  Where will the supply come from?  Since not much has been built, and since there is some oversupply in other types of flex space, what was built as office may now become warehouse space.  While not providing the same number of jobs--which may be why Connecticut's 0.2% job growth is well below that of other states nationally and in New England-- such use does bring economic growth to our region.  There's also a spillover effect into transportation and other ancillary sectors.  Beggars can't be choosers.  We have real estate, and distributors have needs.

So, if you have land on which to build storage space, or space that can be converted, this is the time to put it on the market.  There are takers out there.

The Amazon Ripple Effect

Now that Amazon's new warehouse is about to open in North Haven, we should focus on the broader effects of its presence.  Although politicians tend to focus on employment, we should also consider the other businesses brought here by Amazon.  We have had two large deals recently, where the buyer chose the location because it was a supplier to Amazon, or provided a service that it would purchase. Investors, developers, and builders, please take note.

Since all of those other organizations employ people as well, plus they pay taxes and buy goods and services, this is very good news for our region. Warehouse space is becoming more desirable, and other companies will build from scratch.  The multiplier effect will be in full force!  Employees will also buy houses, cars, and durable goods, plus eat out, give to charities, and pay taxes.  And that will be good for all of us.

A State Full of Warehouses

There's been a lot of talk about the aborted Amazon deal in Queens, and many commentaries on the pros and cons of the decision.  Let's not lose sight of the fact that we have a big--gigantic, even--warehouse going up in North Haven.  Although distribution centers lack the glamour of headquarters buildings, and admittedly have many fewer employees per square foot, they certainly boost the local economy in many ways.

Connecticut, with its prime location between Boston and New York, has long been a place from which companies served both of those markets.  Even as the world becomes more technological, and much more things are done online and in the cloud, there are still more and more physical objects that get moved around daily.  Many more shoppers go online to buy, as opposed to driving to a traditional mall.  Streets are littered with FedEx and UPS trucks, and 54 cents of every advertising dollar is now spent online.

That should mean that our future in this state will depend upon our ability to help manufacturers and middlemen move goods from place to place, especially in the Northeast Corridor.  We are well suited for that, as long as we begin to focus more on our infrastructure.  The transportation lockbox in Hartford will be key for improving our roads and rails.  But geography, and our much lower real estate prices, are on our side.

Properties that are built as warehouses, distribution spaces, or flex spaces, and those that can be rehabbed into those types, are ripe for the picking.

Amazon and Connecticut--A Good Match?

Plenty of pundits have already weighed in on the issue, but I feel compelled to comment on the Amazon search for a second headquarters, because the question emphasizes both the benefits and deficits of Connecticut.  Everyplace in the country is competing, so we should strut our stuff as well.

They want a place with access to a skilled workforce.  We have that in abundance.  Our higher education system is good, and our proportion of highly educated workers is above most other locations.  We also have lots of people looking for good jobs, or leaving the state because they can't find them.

Amazon is a distribution company at heart.  Its real mission is to get you what you want, when you want it. That's different from manufacturing, or even from most retail businesses.  Rather than having a unique product, they have a unique delivery and distribution system, because they both store and consign items.  They ship from other places and other companies, even from other distributors, and they do so on a timeline that's very hard to beat.  Where is Connecticut located?  Right between the Northeastern hubs of NYC and Boston.  Our future is, as some have said, in distribution.  We are too high-cost to manufacture some things, and too small to have the population to use all the goods ourselves.  But we can ship in every direction.  And we have excess real estate at reasonable prices.

So why aren't we on the short list?  Probably we never made the long list, and that would be because we have a reputation for being a tough place to do business.  Not just expensive, since both Boston and NYC can beat us on that front, but unfriendly and anti-business.  We are almost alone in our own quadrant there, although Vermont is probably nearby. 

It certainly doesn't help that Hartford is poised to file for bankruptcy, we have no state budget, and we have union contracts that are far more generous that the states around us, or anywhere.  If you were outside the State, reading the papers, would you consider us?  I certainly hope so, for the reasons above.  And I hope even more that the Legislature and the Governor's cabinet do everything they can to address the issues in this paragraph.