CBRE: Tenant Demand Remains Strong

Craig F. Thomas, senior vice president and director of research and research systems for Torto Wheaton Research, said that a host of economic indicators point to a very strong economy in 2006 with little or no chance of a recession. The only true roadblock to growth in the commercial office sector this year is the end of the housing boom, he noted, which will slow the economy somewhat. "The good news is that the housing boom happened while the rest of the economy repaired itself." He believes that in spite of the downturn in the residential sector, the commercial office market can still grow. "Office absorption can happen without the housing boom."

Thomas believes that "economic growth can't get any better than it is now." He said that consumer spending will fall this year due to lower consumer confidence caused by the housing market downturn and that the economy will continue to expand, but at a slower rate. He also said that nationally, "we are going to see a pause in the decline of availability."

Dean Shapiro, executive managing director of CB Richard Ellis, who spoke on market conditions in New York City, said that based on record leasing activity in 2004, followed by another strong year in 2005, he sees further depletion of large blocks of space in Manhattan. He also predicted a significant price escalation in rents for prime office space and tenants considering "alternative occupancy scenarios," including relocations to Westchester or Fairfield counties, due to tight market conditions in Manhattan.

Robert Caruso, managing director of CBRE's Westchester and Connecticut operations, said the Westchester County market will continue to evolve from a region dominated by large tenants to an area that boasts a much more diverse tenant base. Due to some space givebacks, availability rates will remain high in some areas. In Westchester, he expects some property owners to raise rents and reduce concessions.

In terms of Fairfield County, Caruso said that the expansion by UBS and the commitment by RBS Greenwich Capital to build a 500,000-sf complex are major deals for the City of Stamford. He noted that the Stamford office market is recovering nicely from recent hard times and has seen its average asking rent skyrocket by more than $4 per sf in the last year to $37.35 per sf.

The firm, which reports that the countywide office availability rate fell nearly two percentage points to 15.2% at the end of the first quarter of 2006. The overall asking rent countywide rose $1.14 per sf in the past 12 months to $28.72 per sf at the end of the first quarter.

Caruso said that the office rent increases in Fairfield County show the market has "really turned a corner." He noted that "throughout the downtown, competition for tenants centered around aggressive pricing and incentives. Landlords are raising rents now because they feel confident in the market's prognosis for the near future."