Connecticut Commercial Real Estate: A Year End Review

One year ago, serious concerns surrounding unemployment, budget deficits and various financial crises combined to make many believe the United States was poised to fall back into economic recession in 2012. Fortunately, this did not occur and the New England economy continued on a path of slow growth recovery.

Today, as seen by the number of new projects either being started or finished throughout the region, there are bright spots that are in sync with national trends — inventory, sales and median prices are all up compared to one year ago.

Multifamily housing in particularly is heating up, and increased construction is meeting increased demand. With approximately 212,400 units in its inventory, the Connecticut apartment market is roughly the same size as Miami/Dade County. Some 50% of that stock is in Hartford County, with the balance split between the New Haven and the Bridgeport/Stamford markets.

The Connecticut apartment market has put up consistently strong occupancy rates, coming in at 96.0%. There is not much variation when you slice and dice the data; all product segments report occupancy right around the average. Most submarkets also line up with the average, with a few exceptions: The Waterbury submarket of New Haven County has a slightly lower occupancy at 94.6% as does Northeast Hartford at 94.7% occupancy.

However, while occupancy is strong, Connecticut is continuing to show slowing growth levels in rents. Year over year rent growth was at an annualized rate of 1.4% in Q1. This rate is down from the 4% to 5% rent growth in late 2011 through early 2012. An interesting exception is the Southeast Hartford/Middlesex County submarket, which continues to enjoy sustained 4.9% annual rent growth, consistently at the top of the charts over the past two years. Looking ahead, the average Connecticut rent growth moving is likely to remain under 2% due to an overall slow-growth environment.

Transaction Activity
In New York and southern Connecticut, transaction activity has picked up approximately 12% percent from one year ago, reinforcing higher values and compressed cap rates. Sales velocity of properties selling for $10 million and more has increased more than 20% during the most recent 12-month period.

Pricing for apartment properties has generally recovered from the recession, except for Class C apartments, which continue to be viewed in conjunction with distressed opportunities even if they are stable. As sales within the distressed arena have been more prevalent, strong valuations for Class C assets have been less achievable. Until the bulk of the REO assets work their way through the foreclosure process, Class C apartments will continue to struggle regarding pricing with investors.

Next time, we’ll take a look in the crystal ball and give you our take on what the market will be in 2014.

With offices in Connecticut (and New York and Massachusetts), our investment sales teams are well positioned to support multifamily and commercial real estate investors looking at Connecticut commercial property. If you’re a property owner or an investor in the mid-market segment and want to discuss this survey data or your investment goals and how we can help you achieve them, please give us a call.