This article originally appeared on CoStar Insight. It has been republished here with permission.

Falling occupancy and decelerating rental performance in Fairfield County, Connecticut, over the past year have pushed institutional buyers to the sidelines, dragging deal flow to its lowest level in over a decade.

In 2022, enthusiastic buyers in Fairfield County drove office sales activity to $740 million in volume, the highest annual tally since 2007.

But by the next year, tenants in Fairfield County’s office market returned space to landlords in droves as net absorption, or the change in occupied space, totaled negative 1.1 million square feet. The average vacancy rate jumped 100 basis points year over year, leading to a sharp deceleration in asking rent growth. With a negative rent outlook predicted for the next few years and still elevated debt costs, the majority of buyers have retreated from the office sector.

The most notable pullback came from institutional investors, leading to an 80% drop in sales volume in 2023 from the prior year. The roughly $147 million in deals last year marked the weakest annual tally since 2011. At its peak, 12-month trailing sales volume reached $1 billion in mid-2022.

Private investors and owner-users dominated the buyer pool over the past year, purchasing mostly one- and two-star suburban properties. All but two of the sales during this period totaled less than $10 million, accounting for 71% of total sales volume. Private investment acquisitions represented 78% of sales volume and owner-users followed with a 21% share of all buying activity.

This year is off to an uninspiring start, with just $9.2 million in sales recorded between January and March, the weakest first-quarter tally since 2009. Year to date, the largest transaction involved a 32,000-square-foot property on Post Road West in Westport, Connecticut. Private equity firm American Bailey Corp. paid $6.6 million, or nearly $206 per square foot, for the building. The company will relocate here after leasing their previous space in Stamford for 39 years.

Following their buying spree in 2021 and 2022, institutional investors, real estate investment trusts and large private equity players have not made meaningful changes to their Fairfield County office portfolios. In fact, nearly all acquisition and disposition activity since the beginning of 2023 has been concentrated among private investors, such as wealthy individuals and local developers.

With much of the pressure on occupancies and rent growth in the near term focused on premier four- and five-star buildings favored by institutional buyers, overall volumes here will likely remain subdued.

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