By Michael Doherty
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14 Jun, 2023
Realty investors Ryan Deasy and Michael Doherty in March paid $1.5 million for a 9,554-square-foot Farmington building with 30 micro offices sharing a common kitchen, bathroom and conference room. At the time, 10 were vacant. Two months later, the offices — ranging in size from 150 to 600 square feet — were completely filled. The investors — principals of Farmington-based Skytree Investments — have seen solid demand for small offices at several other properties, Deasy said. Since launching the company in late 2021, Skytree has built a $7.5 million portfolio of six office buildings, some with ground-floor retail. Located in Farmington, Middletown, Simsbury, Winsted and New London, each building incorporates some form of small office/coworking space. “It’s hot,” Deasy said. “People are coming left and right to fill those spots. Generally, it’s people looking to get out of their house, to get away from kids in the background. Some people have clients and it’s not appropriate to have meetings in their home office. Others are working virtually and want a real address other stuff can come to.” As big companies retreat from massive suburban office complexes, and owners of Class A, center-city office towers fret about growing vacancies, some small office landlords and coworking space providers say they’re seeing strong demand. They credit this to pandemic-related, work-habit shifts — mainly a wider embrace of remote and hybrid work. “Generally speaking, we were all allowed to work from home” during the pandemic, Deasy said. “There are 50 percent of people who love working from home and will never go back. The rest either have employers who want them back, or who have no home office. I think we are going to find ourselves surprised at how interested people are in these spaces. I think the days of companies renting out (large office space footprints) are over.” Southington-based Advise Realty Services represents a Rhode Island investor who in May paid $4.1 million for two midsize office buildings in Southington’s town center. The same buyer last year paid $2.3 million for two midsize office buildings along the Silas Deane Highway in Wethersfield. Advise Realty founder Vinny Valentino said the buyer’s plan is to offer small offices with shared conference rooms and common areas. “A lot of people are getting out of the trend of wanting to work from home and want to work in an office,” Valentino said. “Maybe they aren’t renting 4,000 square feet. Maybe some of their executives can work out of a smaller office.” Figuring things out Tom York, a principal of East Hartford-based real estate brokerage and advisory firm Goman+York, said the shift in work patterns will probably continue to turn up demand for coworking and small office spaces. But that dynamic could quickly shift, depending on the economy’s strength and employer demands. Many executives want to reel more staff into the office for longer periods, he said. “I think it’s going to be a decade before we figure this out,” York said of post-pandemic work patterns. “There’s no analog to this. People are trying things out. It’s still a huge, open question. A lot of C-level folks don’t feel productivity is where they wanted it to be. A lot of C-level folks are saying this is not sustainable, what we are doing.” Chris Ostop, managing director of advisory and brokerage firm JLL Connecticut, said he doesn’t see coworking space being a major disruptor to the state’s broader office market. Coworking has always shown up in small pockets in Connecticut, he noted. Employers are increasingly adamant about employees returning to the office, and an increasing number of “career-driven” professionals are flocking back on their own initiative, he said. Sure, many companies are downsizing office footprints, but that’s not going to fuel a surge in coworking, Ostop predicts. “Every tenant who has a big office and is downsizing, it’s not like they are going to zero,” Ostop said. “People are looking for smaller spaces, but the Reguses … and WeWorks of the world, it doesn’t make sense after like eight people. The math gets squirrely. You are not going to do WeWork for 25 employees. Just go get an office, so you can build it out and have a culture.” Coworking prospects At the close of the first quarter, coworking giant Regus counted 12 Connecticut locations among 3,375 globally run by its parent company, International Working Group. IWG operates the Regus and Spaces coworking brands. The company said it signed deals for 170 new coworking locations in the first quarter of this year, up from 51 in the year-ago period. It also reported record quarterly revenues that were up 25% from a year earlier. In its first quarter earnings report, IWG said it was seeing “higher demand for hybrid working solutions globally with companies reducing their real estate costs and responding to the needs of their employees,” but that “macroeconomic headwinds,” including inflation and higher interest rates, could negatively impact future office-space demand. On a far smaller stage, West Hartford Coworking offers 10 desks and seven offices capable of hosting one or two people, all with shared amenities, from a leased 4,100-square-foot space on New Park Avenue. At present, only two desks are available, said Annisa Teich, managing director of Bromleigh Ventures, parent company of West Hartford Coworking. Even so, she is wary of a possible shift, either in working habits or the economy. She believes the small business advisory services and special events offered at West Hartford CoWorking will help shield it from any downswing. “I think if we were just offering space, we might be in a little bit of trouble,” Teich said. “We offer space and community programming. We have small business services on-site. That certainly bolsters another kind of community that keeps us alive.” Teich said she’s confident enough that Bromleigh is opening a second location, WindsorWorx, this July. She’s leasing 3,800 square feet on the first floor of a converted 15,990-square-foot light industrial building at 41 Mechanic St., in Windsor. The building is in a section of Windsor that officials are trying to turn into a more vibrant town center. It’s a short walk from a passenger rail and bus station. Nearby, developer Greg Vaca is transforming a shopping center into a mix of retail and 106 apartments. “If Greg Vaca was not coming in with that complex, I might not have been as excited about Windsor,” Teich said. “Seeing brand-new development come in at this stage is really encouraging. Other areas where you are seeing apartments go up with one-bedrooms, they are typically for younger folks. They are going to be more familiar with this (coworking) model. They are more likely to have some hip, sexy job that will be remote.” Developer Randy Salvatore, who has built multifamily projects in Stamford, New Haven and Hartford, said coworking space is a popular feature in the 270-unit mixed-use apartment building he recently completed next to Hartford’s Dunkin’ Park baseball stadium. There is also coworking space, including a conference room, built into a 228-unit apartment development Salvatore’s RMS Cos. has nearly completed on Broad Street in Stamford. Coworking will also be incorporated into a 204-unit apartment building planned in Norwalk, Salvatore said. “We need to provide places for people to do that if they don’t want to sit up alone in their apartment doing it,” Salvatore said. “Anything designed after the pandemic will have more (coworking space) because we have seen the demand for it, and the necessity.” Source: https://www.hartfordbusiness.com/article/despite-sectors-woes-some-landlords-say-theres-demand-for-small-office-space
