2008 third quarter office market overivew | 1 cbia economic summit & outlook 2009 | 1 cbia...

2008 THIRD QUARTER OFFICE MARKET OVERIVEW | 1CBIA ECONOMIC SUMMIT & OUTLOOK 2009 | 1

CBIA ECONOMIC SUMMIT & OUTLOOK 2009

prepared by

JONATHAN PUTNAM


1 “CAUTIOUS PESSIMISM”


FAST CHANGING LANDSCAPE

As of August, UCONN’s CCEA was predicting a soft landing for Connecticut with a short downturn:

“Connecticut will suffer mild job losses, especially compared to both previous contractions and compared to most other states. At the same time, the total output in the Connecticut economy will continue to grow — so Connecticut will not experience a recession. And by the end of the forecast period in 2010, this Outlook anticipates growth in the Connecticut economy to accelerate. This reasonably good outcome—a soft landing…”

By November, CCEA had a very different assessment.

“Connecticut’s economy is in a recession; the contraction began nearly a year ago, in third quarter 2007,. But to date the pain has been remarkably little. Connecticut has seen only modest job losses through this period, and its unemployment rate, 6.1%, is below the national rate, 6.5%. Despite the gathering economic storm clouds, the CCEA Economic Outlook forecasts total job losses of only 40,000 and a modest decline in the state’s economic output. Declining energy prices – the price of a barrel of oil has fallen nearly 60% since its peak – will mitigate the economic contraction.”


INSURANCE Healthcare companies stable Property Casualty/Wealth Management companies a mixed result The Hartford’s recent struggle is alarming

AEROSPACE - DEFENSE Connecticut’s high tech engineering and manufacturing sector has

been relatively healthy supported by the weak dollar, defense spending and growth overseas

FINANCIAL SERVICES Financial firms which had been riding high are in crisis mode

REGIONAL ECONOMIC DRIVERS


2 OFFICE OVERVIEW


HARTFORD CBD TRENDS

4Q 06 4Q08

Rents

4Q08

$25 to $60

Tenant Improvements

$22.59

4Q 06

$15 to $30

Operating Expenses

4Q08

4Q 06

$15.50

$17.00

PAST 24 MONTHS

Landlords’ bottom lines have been eroding….

Rents

Operating Expenses

NEXT 24 MONTHS


HARTFORD CBD RENTAL RATES VS. VACANCY

$13.50

$14.50

$15.50

$16.50

$17.50

$18.50

$19.50

$20.50

$21.50

$22.50

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

Rental Rate Vacancy Rate

The space vacated by MetLife added about 400,000 rsf of class A space to the market This brought up the vacancy rate, but also brought up the direct average asking rental

rate


HARTFORD COUNTY LEASING ACTIVITY

Leasing activity remains steady, although lower than that seen in recent years

-

500,000

1,000,000

1,500,000

2,000,000

2,500,000

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008


HARTFORD COUNTY ABSORPTION

Absorption is strongly negative throughout the county, due mainly to space vacated by MetLife in the CBD, The Hartford in Windsor and Vallasis (Advo) in Windsor

506,409

255,539

436,176

(685,303)

(531,440) (519,613)

(10,960)

(177,993)

183,145

(910,146)(1,000,000)

(800,000)

(600,000)

(400,000)

(200,000)

-

200,000

400,000

600,000

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008


HARTFORD COUNTY CONSTRUCTION DELIVERIES VS. VACANCY

0

50,000

100,000

150,000

200,000

250,000

300,000

350,000

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

10.0%

12.0%

14.0%

16.0%

18.0%

20.0%

22.0%

24.0%

26.0%

Construction Deliveries Vacancy Rate

Low levels of construction activity relieve upward pressure on vacancy rates


NEW HAVEN COUNTY - RENTAL RATES VS. VACANCY

$13.50

$14.50

$15.50

$16.50

$17.50

$18.50

$19.50

$20.50

$21.50

$22.50

$23.50

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

Rental Rate Vacancy Rate

Yale University is currently the most active player in the New Haven office market In the fourth quarter of 2008, they leased over 140,000 rsf of space in New Haven’s Science Park,

bringing down the overall vacancy rate


4 CONCLUSION


NATIONAL PERSPECTIVE

HARTFORD 18.3% | $22.91 – CBD Class A STAMFORD 15.5% | $47.46 – CBD Class A

LOS ANGELES 14.0% | $38.65 – CBD Class A

SAN FRANCISCO 11.4% | $50.75 – CBD Class A

SE A TTLE 10.6% | $38.83 – CBD Class A

BOS T ON 7.3% | $61.88 – CBD Class A

W ASHING T ON DC 10.8% | $55.74 – CBD Class A

MIDTOWN MANHATTAN

9.2% | $92.32 – Midtown Class A

CHICAGO 12.4% | $31.71 – CBD Class A

ATLANTA23.9% | $21.26 – CBD Class ADALLAS

21% | $23.71 – CBD Class A

DENVER11.4% | $32.47 – CBD Class A

Source: Cushman & Wakefield Research

Overall Class A Vacancy and Avg. Direct Asking Rent


MARKET SUMMARY

Investment activity had slowed dramatically– flight to quality and more conservative underwriting

Hartford Investment Market surprisingly active through 3rd qtr., despite financial upheaval

Credit - from the Latin verb credere: “to believe”. We are experiencing a monumental crisis of confidence

Capital expenditures under tight scrutiny. Tenants reluctant to move due to up front cost of relocation

Hartford and New Haven office markets will see moderate downturn Well capitalized Buyers and Tenants will dominate. Fortunes will be

made by the risk takers – OPPORTUNITY arises from chaos


C&W CONTACTS

C&W NEW ENGLAND RESEARCH SERVICES

C&W NEW ENGLANDTHOMAS L. COLLINSExecutive Managing Director, New England [email protected]

RICK CLEVELANDDirector, Research ServicesNew England [email protected]

ANTHEA STREZZEAssociate, Research ServicesNew England [email protected]

C&W Of Connecticut, Inc.280 Trumbull Street

22nd FloorHartford, CT 06103

T 860-249-0900F 860-522-3941

www.cushwake.com

C&W CONNECTICUTJONATHAN PUTNAMExecutive Director, [email protected]

2008 third quarter office market overivew | 1 cbia economic summit & outlook 2009 | 1 cbia...

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