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.

Start Ups are Starting Up All Over

 There are three primary motivations fueling the current boom in start ups.  One is that many people have left, by choice or otherwise, their employment elsewhere, and are following their dreams into their own businesses.  The second is the availability of cheap capital, with banks looking for loans, The third is the real wild card, because most of us can't remember an earlier pandemic.  The health crisis over COVID is spurring entrepreneurs to look for solutions to new problems, or to fulfill needs that aren't being met currently, such as with PPE.  

These three reasons have combined to make this year, despite all of its terrible downsides, a fertile one for new ventures.  There has never been a greater need for people to look outside the box for answers, and smart businesspeople everywhere are capitalizing on that need.  It usually also means that those same risk takers will also think differently about commercial real estate.

In the recent past, we've seen other trends, such as the repurposing of old industrial buildings and schools for residential or commercial use, or the rise of "green" as the ultimate amenity.  To court millennials, landlords have developed more open space, more areas for socializing and recreation, and paired food and drink with workplaces.  One residential landlord told me recently that he has a dog washing station at his newest project, a nod to the proclivity of millennials to have pets in urban areas.  

What will the COVID crisis bring us in innovative trends?  Maybe shared space that's shared by day, by time of day, or even by season.  Perhaps there will be more and better use of stairwells, to cut down on elevators, and probably different eating options (more picnic areas outside, fewer cafeterias).  Outside heaters and fire pits will definitely feature in chic workplaces.  Cleaning processes will become big factors in rental choices. 

What should landlords do?  Maybe begin by thinking more favorably about start ups, looking more at the people involved, and less at the company history.  Be more willing to consider drastic or unusual changes in floor pattern or layout.  What about putting the gym next to a garage door of a sort, where a whole wall opens to the outside?  Or a year-round pool, heated with geothermal energy?  It may be that shorter leases with more options for extra space or an early exit are entertained. 

If this year has taught us anything, it's that no one knows what the future will bring.  Remember that fortune favors the brave!

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!

Investment Real Estate Still Strong

For all of the complaints of businesspeople about Connecticut, it remains a place in which people want to invest.  There are many reasons for this.  One is that most investors tend to invest close to home, maybe because it's easier to take care of details when the property is close by, and maybe because they know more about values in their own vicinity.

Another reason is that there are specific opportunities in our region.  For example, New Haven has a robust rental housing market, with thousands of students, and a population that includes 62% renters.  Despite all the building, conversion, and development of rental housing over the past decade, inventory keeps disappearing. Much the same is true of warehouse space, based upon our proximity to Boston and NYC.

Prices remain low in our area, especially, again, compared with our neighboring states.  Although prices for residential property rose 7% in January, over the January before, there are still bargains to be had.

We have a strong vacation home market.  Waterside and wooded locations appeal to buyers, because they can be enjoyed, but they can also be rented to others.  Fears about travel will only increase the desirability of locations near major metropolitan areas.

There's a lot of money in Connecticut, and it all needs to find places to go.  Real estate is an attractive opportunity, and one that most people understand and appreciate.

All of this goes to suggest that, if you have property to sell,  you should consider selling it now.  If you are looking to buy, you should do that before the inventory dries up.  Based upon the above list, that might not take too long.