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.

Land Rush in Connecticut

The old saw, that they aren't making any more land, is still true.  The pandemic has made people look for room to spread out, whether it be to live or to work. We've been seeing more land sales as a result.  

It's probably also because land is harder to finance, and requires more money down.  Money is cheap now, and also doesn't have a lot of value just stored in a bank.  In addition, most people with investments have seen them go up in value, so they have cash with which to diversify.

 

Given our prime location in Connecticut, between NYC and Boston, land should be at a premium.  And, since so much of what's already built is being repurposed for newer uses, it makes the cost of building from scratch look less steep.  Plus, you can have exactly what you want. The lack of supply feeds into this too.  If you can't find it, build it yourself.

 

Finally, entrepreneurship is at a high level these days.  Risk takers take other risks as well.  Building is often seen as riskier than buying an existing property, and certainly building on spec is always a risk.

  

What does this all mean?  If you have land, now just might be the best time to sell.

Return to Commercial Real Estate Normalcy?

Everywhere we go these days, we see signs of the region opening up.  Since we in Connecticut were so locked down compared to some other parts of the country, the difference is palpable.  There are many fewer masks, at least outside, and more open storefronts.  Traffic has also picked up.  Economists are predicting a surge in consumer spending, with price increases and supply shortages.  Tour operators and airlines are seeing strong demand, with many trips around the country and the world sold out.  

What will this mean for commercial real estate in our area?  With people venturing back to "normal" life, and not as much to spend their money on, with building projects and delivery of many consumer goods backed up, they are likely to patronize restaurants, stores, and other attractions.  Summer weather will likely bring a boom in the retail sector.  

Rental and multifamily housing will also remain strong.  Families who have sheltered together may have come to the end of that phase, and younger--and maybe older--members will seek new apartments, especially if the supply of single family homes continues to be so scarce.  Greater New Haven and Greater Hartford are primed for more demand in this sector, with lots of new projects, and affordable prices. Given our vaccination rates, we are likely to attract those from other places as well.

Industrial real estate is like toilet paper was last year--there just isn't enough to go around.  That leaves office space as the wild card--how will it do?  Some changes in commuting patterns and remote work seem permanent, or at least semi-permanent, so that will have an impact.  But, if the economy booms, will new companies take that leftover square footage for new ventures?  Let's hope so.  

In the meantime, let's enjoy Connecticut's moment in the sun--literally and figuratively!

Industrial Real Estate in Connecticut is Flying Off the Shelves

Actually, the real problem is that there isn't enough to fly off anything.  For many years now, industrial real estate has languished, and much of it has been converted into other uses.  Little new square footage has been built.  As a result, there is a real dearth of supply.  With demand booming in many industries, and PPP money shoring up cash balances, people are looking.  And not finding anything, in most cases.

If you need more space, or are planning to move in the next few years, this is the time to put your current property on the market.  As buyers in the residential market abound, there is evidence all around of residents putting down roots in Connecticut.  They will need jobs, or they will own or open businesses.  This is a great opportunity for sellers, since supply cannot simply catch up with demand in the short run.  

It may be cheaper to buy new, and sell what is outgrown. Sellers with land, or extra land around a facility, should consider monetizing that property.  With so much pent-up movement, and a year of doing nothing behind us, 2021 is shaping up to be a great year for real estate.  Why not join in the party now?

The Future of Offices When Workers Have a Choice

By Doug Proleg of the New York Times, Click for New York Times Website

 

Some work spaces in central employment districts may become housing, and some housing in residential areas may become work spaces.

Some work spaces in central employment districts may become housing, and some housing in residential areas may become work spaces.

Coronavirus will not kill the office. If anything, it figures to be more dynamic than ever. The ability to work remotely will not drive most people away from cities and offices, but it will enable many to live and work in new ways and places — while causing its fair share of disruption.

Even before the pandemic, there were signs of trouble with the office market in the handful of cities where the “creative class” had been flocking. In 2018, net migration to New York, Los Angeles and San Francisco was negative, while the U.S. economy grew at a healthy 2.9 percent. Creative magnets like London and Paris were experiencing similar declines.

The explanation for the declines — mostly high housing costs because of severe limits on new construction — obscures other forces that were destabilizing the traditional office market. In the middle of the 2010s, Amazon, Facebook, Google, Apple and others started splitting their headquarters into multiple locations. Stripe, one of the world’s most valuable start-ups, went a step further. In 2019, it “opened” a remote hub, hoping to “tap the 99.74 percent of talented engineers living outside the metro areas of our first four hubs” in San Francisco, Seattle, Dublin and Singapore.

For the fastest-growing companies, being able to tap into talent anywhere became more important than having all their teams in one place. Smaller cities were good enough. In retrospect, this shouldn’t have been a surprise, despite all the talk about the importance of giant, dense labor markets to fuel innovation. After all, Silicon Valley itself is not a city but a cluster of sprawling towns scattered along a highway.

The defining characteristic of this new version of the creative class may not be where it lives, but its ability to live anywhere it wants. Put differently, people move to certain cities in search of better-paying jobs, but it’s now possible to earn high (if not the highest) salaries from almost anywhere. That has been true in certain smaller cities in recent years (Austin and Denver in the United States, for example, and Manchester and Leeds in Britain). To a lesser extent, it has also been true for people who chose not to live in cities at all.

There were more specific signs that the office market was headed for a crisis. While employers were fighting over talent, many employees found traditional offices lacking. In 2019, Leesman, a firm that measures employee experiences, analyzed how the workplace affects employee productivity, pride and enjoyment. Drawing on 719,000 respondents in 4,771 workplaces worldwide, Leesman found that nearly 40 percent of employees felt their workplace did not enable them to work productively.

Then the pandemic forced many employees to reassess their preferences. Multiple surveys have found that many are happy to continue to work remotely and would move, if given the chance. Still, this data tells us little about the post-Covid world. Those who thrived initially might burn out if they stayed home for a more extended period. Those who struggled might do much better once they’ve mastered new tools, once they have access to alternative spaces near home, or once children, housemates and partners are back in school or at work. At the same time, the technologies that allow us to work, learn and socialize remotely will only get better.

Covid-era market data also offers mixed signals. Landlords and brokers are quick to point out that companies like Google and Facebook signed new leases during the pandemic. But these companies hire thousands of new employees every quarter and plan their expansion many quarters or years in advance. Even companies that aren’t in growth mode have yet to make up their mind about the new normal. Instead, many are renewing their existing leases for a shorter period until market conditions become clearer. Data from JLL, a real estate consultancy, shows that renewals as a share of leasing activity have jumped to 51 percent from 29 percent pre-Covid, and that leases are becoming shorter.

It seems safe to say that total demand for offices will diminish to a moderate degree. The bigger changes will be in how total demand is reshuffled and what office providers will have to do to remain competitive. Most office activity will not move to homes or to the cloud. Instead, it is likely to be redistributed within and between cities, with a variety of new employment areas popping up and saving many people the trouble of simultaneous commuting to a central business district.

At the end of the 19th century, most American urbanites walked to work; as late as 1930, Manhattan’s residential population was larger than it is today, meaning the city was more mixed in terms of land use, not dominated by office towers. It’s not hard to imagine that many will once again prefer to work within walking or biking distance of home.

As a result, buildings in many traditional employment districts will have to compete more fiercely, and a small but significant percentage of office space will most likely have to be repurposed into housing, e-commerce fulfillment centers, delivery-only kitchens, health care centers, meeting spaces, event spaces and other uses.

Residential areas, street retail shops and hotels may have to accommodate more daytime workers. Signs of this shift are already visible. The nation’s largest multifamily operators, Avalon Bay Communities and Equity Residential, have been adding work and meeting spaces to their buildings for a few years now.

Common, the largest co-living operator, is partnering with local governments to develop new types of live/work communities. Hospitality brands like Starbucks, CitizenM and Mandarin Oriental have been experimenting with converting local coffee shops and hotel floors into work spaces that can be booked by the hour or day. And city governments are working to redistribute jobs and services across residential neighborhoods.

Post-Covid for example, a Brooklyn or Queens resident who previously commuted to Manhattan may opt to work several days a week in a shared space within a 10-minute walk from home. Some large employers are already experimenting with satellite offices in the suburbs of cities in which they already have a downtown headquarters. The main office will remain important for most companies, but fewer employees will be expected to be there all day, every day.

The office will become more of a consumer product. And just like every consumer product, the office will have to continually fight for its customers and meet their needs — not only when it’s time to renew the lease. Offices will need spaces for specific tasks like focused work, team brainstorming, client presentations and employee training. And they will need to be more focused on individuals, even if these people work for a large company.

These changes will be gradual, but they will have a significant impact on urban office buildings, which used to be perceived as almost as safe as government bonds. Consider, in comparison, that the “retail apocalypse” that led to multiple bankruptcies and the closing of tens of thousands of stores was a result of less than 12 percent of all activity moving online, over a period of two decades, while total sales were still growing.

Over the next decade, the transformation of the office market figures to be less comprehensive, but it will probably happen faster and to an industry that is far less prepared. And just as in retail, it will create some new winners, as well as a multitude of losers — those unwilling or unable to adjust to an era of worker choice.

Remember What Will Follow Apartments in Greater New Haven

 New Haven just keeps adding to its apartment inventory.  Some are retrofitted from other uses, some are built new, and all seem to be filling up.  Some of the short-term demand could be because more students are choosing to live off-campus during the pandemic.  Students from other countries, particularly, may be here even if there are no in-person classes, or if their cohort is not in residence at this time.  

Whatever the cause, we just seem to keep building.  Remember the old line from the movie Field of Dreams:  "Build it and they will come"?  Whether or not that is true, the real estate sequel, had it been made, would have reminded the characters that after they come, they will need other things.  Despite the tremendous growth in on-line shopping, there are necessities of life--and last-minute purchases--that require bricks and mortar stores and restaurants. So it stands to reason that, with new apartments everywhere--retail will follow.  

Smart investors should be looking now for what tenants want nearby, especially if they are students.  Gyms, spas, takeout places, and pet businesses are more popular than ever, but, even without bars and nightclubs, other establishments will do well.  Once the weather gets colder, bicycle commuters, walkers, and train riders will be picking up supplies on their way home from work, and they won't be going as far to do so. 

Even in these uncertain times, downtown New Haven is growing, and there is plenty of room for entrepreneurs to join the apartment dwellers.  And don't forget to think outside the box--our rich history as a manufacturing city has left us with plenty of interesting spaces, and they should all be considered.  Act now, and reap the rewards in the years to come!

Old Real Estate Maxim Still Rules

 When I was in business school, now decades(!) ago, I had a professor whose current work then was focused on how CEOs decide where to locate company headquarters.  His conclusion, after much research, was that the biggest factor in choosing a location was where the CEO him/herself wanted to live.  

While that isn't a shocking result, it is a little surprising that big organizations, with all kinds of considerations for transportation, labor force, infrastructure, taxes, and a myriad of other factors, would in the end have personal preference of one person as the greatest determinant.  We can see evidence of this still, in the recent behaviors of business executives during the pandemic.

Connecticut has been the beneficiary of a move out of New York City, and thousands of people have moved here in the past six months.  Yet we didn't expect that companies themselves would move, and that's turning out to be the case.  And that isn't just in the office arena--manufacturers and other seemingly less mobile property users are also in the mix.

We are getting showing requests and offers from buyers out of state, who are looking to locate where they plan to live.  There are many reasons for their choices, but it points to a brighter future for Connecticut than was predicted while tax policy and weather was causing a rush to warmer climates and distant vistas.  Now, the proximity to major metropolitan areas, combined with family dynamics, is helping us catch us with the economic progress made by other areas over the past two decades.

There are good reasons for this to continue.  Our location between Boston and NYC is obviously key.  Company owners and investors don't necessarily have to live here, but they will have employees and tenants who do.  Many family business owners also want to be where their children and grandchildren are, whether or not those generations are in the company or not.  The current focus on low density and outdoor space work in our favor, and our natural assets have become more important to real estate decisions.

Looking forward, we can see from the residential market that supply may become a limiting factor.  While none of us expected it, this uncertain age has become one of increased real estate activity, and a good time for sellers to consider putting properties on the market.  Who knew that the old research about company location would be so relevant now?

Multiple Offers Come to Commercial Real Estate

Connecticut has been experiencing a lack of adequate supply in residential real estate for some time now.  It's what we call a "seller's market", meaning that there aren't enough listings to satisfy the demand.  This obviously pushes up prices and lowers time on the market.  It also leads to more than one offer at a time on certain listings, which hasn't happened with such frequency in quite a while.

Lately, we are seeing this trend in on the commercial side as well.  With certain types of real estate, especially warehouse and investment, there aren't enough properties on the market.  This is partially due to the fact that very little has been built in recent years, but changes in demand have also affected us.  

One such trend is the move out of bigger cities into smaller ones.  This has increased during the pandemic, and is leading to a resurgence for places where social distancing is easier.  Offices are less affected, because so many people are actually working from home.  Retail has been impacted by e-commerce.  Even industrial properties, though, have seen the uptick in demand.  

Location is also about proximity to larger markets, so it isn't just about where people want to live.  Our real estate is more affordable, and transportation is available to both Boston and New York. We have become very attractive to investors for these reasons, leading to an increase in multiple offers.

We expect this to continue, and we need more listings, in order to satisfy buyers.  Normally, summer would be slow, but that won't be true this summer. Fewer people are traveling, and more want to buy, rent, and sell before a possible second wave of COVID.  So think about your long-term goals, and call a commercial agent soon!

What Shape Will the Recovery Curve Take for Commercial Real Estate?

This is a somewhat misleading headline, since I am neither a professional economist, nor a seer.  The point I want to make, however, is that there is much more activity than there was after the abrupt economic debacle of 1987, or during the Great Recession of the late "Aughts".  In those two prior times, all interest in viewing real estate, or in buying or renting it, went on hold as soon as the stock market collapsed.  It took many years, in each case, to revive demand, or begin to create supply.

Right now, we are seeing strong activity in the industrial market, as well as demand in investment real estate continuing along.  Retail and traditional office buildings have clearly been harder hit, so it will take longer to see what happens in those sectors.  The fact that sales and leases are occurring, however, shows that this recovery won't be as delayed as the other two.  It may not mean that prices stay up, although we haven't seen that problem yet.  

One big factor is that some parts of the national economy, led by ecommerce, and followed closely by PPE manufacturers, have every reason to be expanding.  The pandemic part of this crisis, leaving the economic issues aside, have created opportunities for new businesses and expanded services.  Some of the current trends seem likely to persist, even if the country completely opens up by the end of the summer.  While things could certainly shift for a number of reasons, nimble entrepreneurs and corporate leaders are moving quickly to fill demand. 

The intervention of the government in the early stages may also mean that banks are more inclined to lend.  The relief provided so far gives financing firms more assurance that they will eventually get paid.  That wasn't true in the last recession, and it was recent enough that we seem to be remembering those lessons.  

Let's hope that I'm right, and that we see strong sales and leasing as restrictions lift.  Given our large role in the overall economy, that would be good news for everyone.

The New Normal Seems Workable

When we have listings, we have calls, leads, and showings.  It's that simple.  It's particularly true with industrial space, where no new product has come onto the market in decades.  Docks, overhead doors, and clear span are all important, but the most necessary?  You guessed it--location, location, location.  We are within one day's drive of a third of the US population.  Ecommerce is at an all-time high.  Shipping and delivery are key success factors in that industry.

We didn't know what to expect--not as though anyone else did, either--when the pandemic set in.  We knew very little about the coronavirus, and less about the prognosis for its effect on the economy, except that we knew it wouldn't be good.  Lockdown began, and we all held our breath.

Now, as Connecticut becomes the last state in the nation (along with Massachusetts) to begin to reopen, we have a different point of view.  Although our unemployment is sky high, and our economic damage great, the real estate market is surprisingly robust.  Lack of supply is one reason, but the longer term looks good as well.  Some businesses are doing better in the telecommuting economy.  Many are bouncing back.  The outlook is far less sanguine for retail and big office buildings, but people plan to work, live, and play in the future.  The new normal, as it turns out, may not be all that different from the old normal, from a real estate point of view.  Yes, open floor plans will do a dive, many restaurants will not survive, and big buildings dependent on elevators may suffer, but other trends will emerge.  Small cities and suburbs will thrive.  Open space will raise value.  Banks will make loans.  Cash will leave the stock market, and go into real estate.  Elective surgery and medical visits will begin again.

I'm writing this on a staggeringly beautiful spring day in New England, and maybe that's making my viewpoint sunnier.  But maybe not--people are resilient, and so is America.  We can't forget the motto of the National Association of Realtors--"Under all is the land".  And it's still there.

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.

From the New Haven Register By Dan Haar : Connecticut’s lost decade — and how to avoid a repeat

By Dan Haar, New Haven Register, click to read online

 

 

 

Think back to the first week of 2010.

 

The reigning champion UConn women’s basketball team was steaming toward five more rings in the next seven years. A former Stamford mayor who lost the Democratic primary for governor four years earlier was about to win the seat and hold it for most of the decade.

 

Obamacare was adopted but not yet in place. The Sandy Hook tragedy was three years away. And the Great Recession had hammered Connecticut along with the rest of the nation.

 

As the decade opened, Wall Street had started back upward but Main Street still reeled at rock bottom, facing a tough slog. Exactly ten years later, the nation has recovered heartily and then some, under two presidents.

 

Connecticut? A lost decade by just about every economic measure.

 

A lost decade — and worst of all, we’re not in the clear yet. One more decade like the one that just ended and we are basically western New York, a place with some great assets that’s on the way to someplace else, looking to recapture its old glory.

 

The hopeful news is, we can still avoid another 10-year meltdown. We need some demographic breaks, a solid dose of attitude changes and an embrace of the elusive political middle.

 

Let’s look at the numbers first.

 

A lost chunk of the state

 

Connecticut’s jobs count, the most important measure of how we’re doing, grew by 4 percent in the decade, a total of 66,000 positions if we count annual averages including preliminary 2019 totals through November. By contrast, Massachusetts and the United States both added 15 percent.

 

Those are just numbers. Consider what it really means. If Connecticut had gained jobs at the same rate as the nation, we would have added another 179,000 — enough to support as many households as there are in New Haven, Hartford, Fairfield and Greenwich combined.

 

 

It’s as if we lopped off a hefty chunk of the state, heavily populated by young college graduates. And the housing market reflects that haircut.

 

When the decade started, a single-family house at the median among all sales — where half sold for more and half less — stood at $242,000, in shooting range of the Massachusetts median of $285,000, according to The Warren Group, which tracks house sales. As of 2019, Connecticut was up just 8 percent to $261,000.

 

In Massachusetts, that median house in 2019 fetched an even $400,000 — a 40 percent jump. And although there are no official figures for national median prices, one fastidious website calculates the U.S. gain at 44 percent for the decade.

 

 

What does that mean for the typical Connecticut homeowner? If you owned a house that was worth $350,000 in Connecticut a decade ago, you missed out on $112,000 of price gains that people in Massachusetts and most other states realized in just those ten years. Some parts of Connecticut, notably Fairfield County, fared even worse.

 

Shrinking in an expansion

 

If you’re counting income, we’re still the richest state in average income per person and we’re in the top ten in how much typical families earn. But we’re slipping there, too. That’s harder to measure because the reported numbers bounce around due to small Census sample sizes.

 

We do know this: The biggest picture of all — the total value of goods and services produced — shows Connecticut’s lost decade at its starkest. The total product for Connecticut actually shrank by 0.5 percent, adjusted for inflation, when we compare the average for all of 2009 with the average for the 12 months ending last June, the latest data we hav

 

That’s a shrinking economy after the U.S. recession ended, friends. One slice that meant thousands of livelihoods — the manufacturing of non-durable goods such as food, pharmaceuticals and household items — slipped by almost half, to $6.9 billion a year. The much larger, higher paying finance and insurance sector cratered by 23 percent.

 

Massachusetts, ignited by the allure of Boston and explosive gains in bio-sciences, shot ahead by 20 percent overall even as we shrank. And the nation as a whole, which grew slower than Connecticut from 2005 to the end of 2009, expanded by 19 percent in the decade that just ended.

 

What Connecticut doesn’t have is an unemployment problem, as we track the nation in jobless rates. That’s partly because we don’t have vast tracts of poverty, another strength of Connecticut. And it’s partly that many people just leave if they’re out of work or under-employed. The Census numbers show an average of 24,000 people a year moving to other states over the last five years, making Connecticut the 4th worst in the continental United States, ahead of only Illinois, New York and New Jersey.

 

 

 

 

I’ve studied Connecticut prosperity full-time for four months shy of 25 years as an economics reporter, columnist and business editor. I knew these numbers intellectually. Seeing them all together, calculating them as a decade in the mirror, I feel a punch in the gut, a wistful tear for lost opportunity as a transplanted Connecticut homeowner by choice, an employee in a struggling industry and the father of a newly minted teacher in Boston who’s not coming back.

 

What happened?

 

We’ve argued the causes of Connecticut’s relentless recession from the very start. Tax increases, driven by decades-old debts and obligations, piled up even as former Gov. Dannel P. Malloy cut the size of government by eliminating more than 5,000 state jobs.

 

We’re in the hole by as much as $100 billion including pensions and future health care for public employees, despite restructuring the debts and benefits multiple times. The problem isn’t today’s benefits, though they’re too high for older state employees. It’s that for decades, Democrats and Republicans alike failed to set aside money.

 

Costs for utilities, education, entertainment and health care have climbed as they have in the rest of coastal America. But the perceived value of living in Connecticut didn’t keep pace in large part because we lacked, and still lack, a true magnet city with enough critical mass to attract millennial college graduates.

 

Leafy suburbs unconnected to major cities fell out of favor and the center-cities Connecticut does have are not able to compete with second-tier metros such as Minneapolis, Dallas and Pittsburgh, let alone the giants.

 

 

Manufacturers slowly moved operations to cheaper places. Corporate headquarters, facing profit pressures, retrenched. A few big events bled thousands of jobs, chiefly rising competition for the native American casinos and consolidation in financial services — especially the breakup of General Electric’s GE Capital. That breakup cost 2,700 lucrative jobs, nine times more than the more widely cited but less important exit of GE’s headquarters from Fairfield to Boston in 2016.

 

The Trump-led tax reform of late 2017 didn’t help. Although high-income earners have seen a nice break, the new limit of $10,000 on federal income tax deductions for state and local taxes hurts the entire Northeast, costing Connecticut residents an estimated $2 billion a year.

 

What we have, in short, is a vicious cycle in which people leave or stay away because costs are high in comparison to perceived value, or they leave or stay away because we don’t have any large cities in Connecticut. And that of course drives up costs further because it lowers the tax base. Warren Buffett, the multi-billionaire corporate investor, didn’t help matters by warning people to avoid states with high unfunded liabilities.

 

Rena Carreiro was among those who felt herself moving sideways during the decade. She had worked as an office manager for a manufacturer since 1993. Over the last ten years the business retrenched in Connecticut, moving work elsewhere.

 

Carreiro performed finance, human resources, production control and inventory tasks, taking on more work as people left. “It was wonderful to learn all those new things,” the Waterbury resident said.

 

But there were few opportunities for career advancement. The company — which Carreiro didn’t want to name — closed her plant at the end of 2019. She landed a job at Parker Medical in Bridgewater, a growing company where she has high hopes and new optimism.

 

Solutions

 

Like Rena Carreiro, we as a state can take measures to avoid another lost economic decade. Here’s a 6-point plan:

 

  TAKE A MIDDLE PATH ON POLICY— Democrats and Republicans need to meet in the middle. That means Republicans need to tone down the two-note chorus about taxes and state employee benefits, and help govern like they did briefly in 2017, when the Senate was split 18-18. And it means Democrats must pull back on the throttle for great programs we can’t afford. It’s no coincidence that Massachusetts does well with Republican governors and Democratic legislatures, and the nation does well under centrist presidents such as Bill Clinton. The middle path means Republicans need to stop trashing the unions and Democrats need to stop protecting every iota of their benefits. Modest givebacks on retiree health co-payments and cost-of-living adjustments won’t kill anyone and will help the state. And the middle path means pushing hard for efficiency gains in government at the state and especially in cities and towns, where property taxes are way too high.

 

  SHOW SOME CONNECTICUT PRIDE — Yeah, that was the name of a basketball team but it’s hard to find a place that trashes itself as much as we do in this state. Knock it off. You know who you are. Connecticut has great education, access to mountains, oceans and countryside and a lot of smart and innovative people. We have good cities, not great ones, with truly notable food and music, and access — there’s that word again — to two of the greatest cities in the world. Lack of growth has left us more open space and less sprawl. Enjoy it. Get psyched. Work hard, play hard and stop feeding the collective depression. It’s a small state, go make something happen.

 

  EMBRACE RISK — What do finance, insurance and defense manufacturing have in common? They’re all built around controlling risk. That’s what we do and it shows in the personality of the state. When it comes to business, we need the culture of put-it-out-there enterprise that seems to make no sense, like Amazon, Facebook, Tesla and Microsoft at their founding. We had it in the 19th and early 20th centuries and lost it.

 

  MARKET TO IMMIGRANTS AND YOUNG PARENTS - That’s our sweet spot because it’s more about education and family than urban lifestyle. Connecticut does welcome immigrants in contrast to Trump’s America and that can help us. We do have a good record of attracting people in their 30s. We need to reach those groups more actively with targeted campaigns.

 

  KEEP WORKING ON CITIES AND TRANSPORTATION - Connecticut will never compete on price with North Dakota and Mississippi, nor should we try. Building the place up matters even though it costs money. It’s working in Stamford.

 

  LET EQUILIBRIUM HAPPEN -- State Sen. Matt Lesser, D-Middletown, thinks it’s fine that houses are not overvalued. More opportunity for buyers, he says. It’s a matter of balance and equilibrium. At some point, millennial professionals might figure out that living in a great house in Milford or New Haven’s East Rock neighborhood, with a 15-minute commute, beats five to an apartment in Brooklyn and two hours a day on the subway. That may mean house prices have to fall even further, which sucks for us homeowners. But it’s a path that will work. Embracing equilibrium means understanding that bike lanes in and out of cities, and saving historic landmarks such as the Sanborn Library in Bridgeport, which was tragically demolished in August, will add up.

 

The cul-de-sac

 

Following a balanced path leaves plenty of room for debate over whether we more urgently need to cut taxes — the Republican solution — or, as Democrats insist, increase value by adding amenities to make the state more hospitable.

 

The same argument unfolds issue by issue: paid family and medical leave, a $15 minimum wage, housing subsidies for the poor, housing subsidies for the rich (yeah, apartments in Hartford at a cost of tens of millions for state taxpayers), corporate handouts, expanded Medicaid and on and on. In each one, there is a middle path of compromise that get too little attention. Paid family and medical leave, for example, is too rich a program, too soon, although it’s worthy.

 

All the while, we lost a decade.

 

Twenty-one years ago, a regional economic report warned that Connecticut was in danger of becoming a “cul-de-sac,” an economic dead-end, in part because it lacked “dynamism” in the coming century of urbanization and globalization. Hmmm.

 

“Right now investment is bypassing the state and we have become in many respects that cul-de-sac,” said Donald Klepper-Smith, a longtime economist who has, as of 2020, entered semi-retirement and moved to Massachusetts and South Carolina.

 

Klepper-Smith’s view: We need leadership and strategy to achieve fiscal discipline. “I don’t think it gets fixed in my lifetime because I don’t think we have the political will to fix it,” he said.

 

I’m more optimistic but only slightly. But there are many fronts in this war. Clearly, after the lost decade Connecticut just endured, there is no more wiggle room.

 

Rich Dupont, a manufacturing consultant, is helping the community college system, especially at Housatonic in Bridgeport, train machinists for the thousands of open jobs in advanced manufacturing that will disappear if qualified people don’t materialize. What he says about that battle also applies to the entire state economy.

 

“We are teetering on the edge.”

 

What Will 2020 Bring?

Predictions are always dangerous, and our region, in particular, is often out of sync with other parts of the country, but certain trends seem like fairly safe bets to continue.  One obvious one is the predominance of millennials in the real estate marketplace.  They continue to do things on their own time schedule--they marry later than we did, have children later than we did, and buy houses later than we did.  They also seem free of the stigma of renting, and often prefer to spend their money in other ways.  This makes sense in areas where appreciation has been low, and where it can take a long time to sell something, since they tend to move a lot.  One surprising factoid is that they do buy in the suburbs once they have kids, which many experts thought they wouldn't do.  They do, however, prefer smaller homes on smaller lots, with sidewalks and in walkable neighborhoods.  They also like gray color schemes and soapstone counters, to the boomer off-whites and granite.

The lack of rental stigma carries over into investment real estate.  Younger investors seem to like multifamilies and even single houses for rent, as opposed to the strip centers and office buildings of the boomer generation's investments.  This market continues to be active, especially in light of the many predictors that would indicate a future decline in stock prices.  Bigger investors are also still keen on rental properties, including larger developments.  Warehouses, in addition, are in demand, thanks to online shopping and its concomitant need for shipping locations.

Connecticut is mixed in appreciation growth and in strength of the market in general.  Some places in Fairfield County are popular, while others are not.  New Haven is the epicenter of demand for residential property.  Shorter (and sometimes non-car) commutes and the factors listed above both contribute to that result.  We will have to wait and see what effect tolls have on individual towns and cities, if they ever come to pass. The State's "debt diet" may also come into play, as municipalities lose State financing for improvements and amenities, and local taxes rise.

In conclusion, we are pretty bullish on 2020.  We don't have excess supply in most categories, our distances are small compared to many parts of the country, and cities are thriving in many places.  If Connecticut can manage to raise the rate of job growth, which is close to zero, real estate will only get better as an investment.  We look forward to a year where that can occur!

Another Great Day of Caring in the Books

In 2002, we at Pearce Real Estate wanted to mark the first anniversary of 9/11 by doing something positive, that would make the world a little better.  That year, we chose many projects in many towns that we serve, doing everything from painting to yard work, to filing and stuffing envelopes, and even cleaning up a park.  Over the years, we have served dozens of area organizations, often returning to help out in later years, sometimes with bigger projects, and now in one venue at a time.

Today, we celebrated the 18th Pearce Day of Caring by going back to The Connecticut Hospice in Branford, where we famously cleaned up the grounds, including the pool, after Hurricane Irene.  This year, 40 of  us spread out over the yard and all three floors of the building, painting, filing, moving boxes, staining decks, and performing whatever tasks the staff had for us.  We even gave a class in basic computer program shortcuts!  After our work, we had our usual pizza fest, then some of us stayed to finish up the painting jobs.  

We couldn't have asked for better weather or a better cause, and we always feel good when we take the time to come together and do in a different way what we individually try to do every day--give back to the region that supports us and our business.  I am never prouder to be a Pearce Pro than on Day of Caring, and I'm grateful to the team that devotes its time every year to helping others.



Still More Apartments

Every time we turn around, someone else is announcing a new project with rental units.  Some are in Hartford, some in the suburbs all over, but New Haven is garnering (still) the biggest share.  There seems to be no end to the demand, or at least, we haven't seen it yet.  We all know that it will come, but who can say when the demand will dry up?

There are a few signs of increasing competition for tenants, which would indicate that the peak has passed.  However, we all know that the height of demand is usually demarcated in the rear view mirror.  Real estate is always cyclical.

This begs the question, however, of the other needs that all those tenants will have.  They tend to have high utilization of restaurants, entertainment, and convenience services.  The profile of a renter is different from that of an owner, if only because they aren't spending time or money on home maintenance or improvement.  That leaves them more time to work or play; if it's work, that leaves them also with more money, and a need for time-saving services.  Food places that deliver, pet and beauty options, and retail choices within walking distance will all increase. People who walk places can also drink in bars, since they are walking or Ubering home. Although they have been opening up regularly, the demand may be outpacing the supply, given all those new renters.

Why not try to be ready with commercial offerings. that will be ready when the units come on line?

Our New Milford Office

We recently opened a beautiful new office on the Milford Green, where many of our best commercial agents ply their trade, and we've been getting lots of compliments on the space (and the agents!).  We wanted to embrace our commitment to the Greater Milford market by putting our best foot forward, and we did.  The office had several big transactions in the works at the time of the ribbon cutting, and we are looking forward to a booming summer. Come visit us!



 

My Sabbatical

I am perhaps one of the unusual people who has stayed in the same job for most of my adult life.  I have been running Pearce Real Estate since the mid-1980s, after leaving the practice of law to work with my father in late 1981.  Although it's challenging and absorbing, and I love the people with whom I work, this seemed like the right time for me to take on a new challenge for a little while.

Connecticut Hospice has been a part of my life since childhood, when my father was on the Board and his best friend was the Board Chair.  Over the years, we have represented them in real estate transactions, including the move into their current location.  Pearce Real Estate has done a Day of Caring there, after Hurricane Irene, which was shortly after my father died there.  I have always known what a special place it is.  When I was recently asked to help them, after a period of turbulent management change, I didn't hesitate.  I agreed to become the interim CEO, and I started almost immediately, a few weeks ago.

It has been the most intense professional experience of my life.  There is so much to do, and I am also trying to master a new field.  However, I have great people working with me, and CH has extraordinary employees, who believe passionately, as I do, in the mission of Connecticut Hospice.  They have supported me every step of the way, and thanked me for coming to work every morning.  What happens in that building, and in all the places where CH delivers home care, is a labor of love for every staff member.  I am privileged to have been asked to lead such an amazing organization.

I am also blessed with a terrific team at Pearce Real Estate, where everyone clapped, or even cried with joy, when I said that I was going to spend the next year at Connecticut Hospice, They, too, are extraordinary people, and always in my heart while I work to make Hospice thrive.  I am proud of the work they do as well, and the professionalism with which they assist clients with all types of real estate needs.  Nanette Pastore, who is running Pearce in my absence, is the best partner any executive could ever want--talented, hardworking, caring, and committed.  She is more than ready for this challenge, and she deserves all the support she is getting from everyone.

This blog will continue, as well my commitment to Pearce Real Estate, although most of my time is fully taken at the moment!  I look forward to continuing the dialogue about issues in buying and selling, and to your ongoing readership.

Now is the Time to Invest in Connecticut

We have had so much bad economic news in Connecticut recently--and well-deserved, as we definitely made bad choices over many years--that we have forgotten one basic tenet of real estate:  It comes down to location, location, location.  Although businesses are up in arms all over the State, and many are leaving or considering doing so, they may be discounting the location we have here.

One of our agents believes that, in the future, Connecticut's commercial sector will all be about distribution.  I think that could well be true.  As New York and Boston soar to greater and greater heights, and lure young people from all over the country to settle in those two areas, here we sit--right between the two cities.  While we certainly have not invested in infrastructure in the way we should have, we still have a proximate location that will make our land and buildings valuable for distributing goods.  As one of the articles I read recently pointed out, whatever you can do with planes and ships, you need roads and trucks for at least the last few miles of any delivery. 

So, while factories and malls may be repurposed over time, there will always, in our lifetimes, be a need for space in Southern New England, and that's what we have.  Before others figure that out, and bid up the prices, those of us already here should take a second look at what is available.  It may be that location trumps all those bad decisions.  Let's hope so.