COMMENT:
As Greenwich goes, so go Westchester and Fairfield counties
By ALEX PHILIPPIDIS :: January 10, 2007

Looking ahead to what this year will bring in the office market, the first thing that crosses my mind is the title of a 1980s dance hit, “Ain’t nothin’ going on but the rent.’”

Over the past year, Manhattan rents have shattered the $100 per square foot ceiling -- 41 such deals got completed last year in 21 buildings.

And Fairfield County will soon be in for a taste of the same, if a prediction made Jan. 9 by Cushman & Wakefield’s top regional executive comes true.

“I think that Greenwich in 2007 will be the first Connecticut or suburban New York town to break $100 [per square foot],” said Jim Fagan, senior managing director and head of Cushman & Wakefield’s offices for Westchester County, Connecticut’s Fairfield County and Long Island.

Addressing colleagues and reporters at a half-yearly get-together held, appropriately, in Greenwich at the Delamar hotel, Fagan said the rent surge won’t hurt Greenwich, since there’s a backlog of potential tenants now ready to move in if the century mark ends up driving tenants east to Stamford and Norwalk, or west into Westchester.

Among those tenants, he said, are investment firms: “They are trying to execute a business strategy and they’re not going to let rent get in the way. If you are going to run a wealth advisory services company and you don’t have a location in Greenwich, Connecticut, I don’t care what the company is. It has to be in Greenwich, Connecticut. There’s a market there.”

Now $100 per square foot in Greenwich would certainly be good news for landlords, who now fetch up to $80 per square foot.

And it would certainly be good news for brokers at C&W or other firms, since the pricier the deal, the bigger the commission.

But $100 per square foot rents won’t be so great for smaller businesses and employers, a few of which have begun voting with their feet, so to speak, by relocating into much cheaper space elsewhere.

Two of those deals have been completed in recent weeks in Westchester -- Rye Brook, to be exact:

* Win Properties Inc., a manager of real estate owned by its principals in 37 states and Canada, (You can read more about them here) will move its offices and 17 employees based there from 66 Field Point Road for 7,500 square feet at 10 Rye Ridge Plaza. The new space has another advantage – it is near the Win-managed Rye Ridge Shopping Center.

* Greenwich Hospital will shift 75 employees in its finance (including accounting) and purchasing operations starting next summer from hospital-owned 55 Holly Hill Lane to 30,000 square feet at 900 King St., where asking rents were in the mid-$20s per square foot.

While the hospital needed to free up some clinical space, it also didn’t want to pay the top-dollar rents already associated with Greenwich

“We really needed to find affordable space outside of the hospital, and this presented a very good option for us,” said George Pawlush, vice president, public relations and community affairs with Greenwich Hospital, told the Business Journal last month.

Even one investment firm – its industry the bread and butter of Greenwich’s office market – is leaving the tony town for Westchester. Rockwood Capital Corp. will vacate space at 325 Greenwich Ave. for 13,000 square feet at 10 Bank St., the downtown White Plains office building managed by principals in W&M Properties.

“There was space available for them, but not necessarily where they wanted it to be, by the train station,” said Christopher O’Callaghan, a senior director with Cushman & Wakefield who represented Rockwood in its office search. “They said, ‘By the train station is $80 a [square] foot in Greenwich. So why don’t we take a look at Stamford and at White Plains. And they ended up going to White Plains. It was a little bit unusual for any company that I’ve seen in 15 years.”

Rockwood, like Win, will be eligible for tax breaks from Westchester County. But the biggest benefit of all for them will be the money they save on rent over the next several years.

Those savings also played a role in UST’s recent decision to bolt its 125,000-square-foot Greenwich headquarters, at 100 West Putnam Ave., and shift its 350 headquarters employees to 140,000 square feet at Six High Ridge Park in Stamford.

Stamford rents may be lower – from the mid-$30s to mid-$40s – but one broker at the luncheon predicted they would hit $52 this year. Stamford, like Greenwich, is among central business districts in Fairfield and Westchester counties where rents have risen by double digits in the past year.

“The market is in the midst of a re-pricing. It’s not a bubble. We’ve seen 25 percent increases in CBDs over the past 12 months. That trend will continue to spread into the outlying areas,” Fagan said. “We’re in a pretty expensive place to do business. If there are some companies that have been hanging on for along time where they should have moved 10 years ago, maybe this will be the final straw.”

It’s a case of growing tenant demand and not much new supply of space. Landlords still find it cheaper to buy older buildings, renovate them and raise rents than build from scratch.

So absent a change in the office market, what’s happening in Greenwich will eventually be repeated in downtowns elsewhere in Fairfield County, Westchester too. And smaller businesses and nonprofits will be the ones faced with a difficult choice: Stay and pay more, or vote with their feet and take their jobs with them.

COMING UP:
Cushman & Wakefield on Tuesday had its half-yearly luncheon in which its top brokers chew over the past six months and look ahead to the next six, all before an audience of colleagues and reporters at the Delamar Hotel in Greenwich, Conn. I’ll sum up some of the most important points in my next post.