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 White Plains, NY - Cushman & Wakefield has released its year-end report for the Westchester County commercial real estate market, showing new office leasing activity for Class-A space in the region totaling approximately 1.2 million square feet (msf) in 2008, down from 1.67 msf leased in 2007, the lowest number since 2001.
In the fourth quarter, Westchester County experienced 122,078 square feet (sf) in Class-A leasing activity, a drop from the 354,007 sf leased during the third quarter, and down significantly from 457,216 sf leased in the fourth quarter of 2007.
The slowdown brought available direct Class-A space in Westchester County to 3.9 msf in the fourth quarter, up from the 3.55 msf available at the end of 2007. Of that available space, 498,953 sf is sublease space.
Overall Class-A vacancy rates countywide in the fourth quarter registered 18.3%, on par with the previous quarter, but higher than the 16.6% reported in the fourth quarter of 2007. The market has shifted from one with a lack of supply to a lack of demand. As with most markets, employment softness in 2008 is expected to lead increases in vacancy, but due to limits in new supply the number is projected to head down later in the year.
“Despite turbulence in the economy, the office leasing market in Westchester County remained steady overall in 2008,” said Jim Fagan, senior managing director, and head of Cushman & Wakefield’s Fairfield and Westchester County region. “Unlike some markets in the tri-state region that are home to a large number of companies in the financial services sector, Westchester County will weather the current economic environment and prosper due to the assorted mix of businesses based here.”
Overall asking rents for Class-A space countywide at the close of the fourth quarter averaged $31.77 per square foot (psf), level with the $31.79 psf average at year-end 2007. Although asking rents have increased slightly overall, achievable rents have gone down and concessions, such as free rent and tenant-improvement allowance, have become more generous, resulting in much lower net effective rents for tenants.
In the White Plains CBD Class-A rents remained highest countywide, but decreased to an average of $33.68 psf in the fourth quarter, from $34.07 psf in the third quarter, and $34.94 psf in the fourth quarter 2007. In the White Plains Non-CBD rents remained level, averaging $32.12 psf in the fourth quarter of 2008, up from $31.98 psf in the third quarter, and even with $32.12 psf in the fourth quarter of 2007.
The most significant transactions that closed during the fourth quarter included a 40,300 sf lease for Steiner Sports at 145 Hugenot Street in New Rochelle; a 25,982-square foot lease for Wachovia Securities at 1133 Westchester Avenue in White Plains. Steiner Sports leased 40,300 sf at 145 Huguenot Street, New Rochelle; and a 15,470 sf lease for Allstate Insurance at 660 White Plains Road, Tarrytown.
Overall absorption for Class-A space in 2008 totaled negative 172,870 sf, compared with positive 79,948 sf leased in the fourth quarter of 2007. Total absorption numbers countywide in 2008 were negative 531,364 sf, compared with the 2007 figure of negative 1,753 sf.
Mr. Fagan said, “The good news is that the region’s fundamentals will remain relatively sound due to the long-term contractual nature of leases and tenants with pending lease expirations, combined with the fact that very little new product has been constructed in Westchester County over the past two decades.”
INVESTMENT SALES
The investment sales market in Westchester County slowed considerably in 2008 due to the sharply constrained credit markets, mirroring national trends. There were only two major property sales that took place during the fourth quarter: 1311 Mamaroneck Ave., a 325,600 sf building which sold for $81.95 million; and 100-120 White Plains Road a 211,000 sf property in Tarrytown which sold for $48 million.
In Westchester County, the average price psf for office buildings paid in 2008 was $247 psf, well below the average of $395 psf in 2007. The average 2008 cap rate exceeded 7% for office product, compared to 6% and lower in 2007. Future investment sales activity will be driven by long-term acquisitions with short-term debt.
“Real estate lending has become arduous at best and, as a result, investment sales activity plummeted significantly over the past year,” said Mr. Fagan. “While investing will not be for the faint-of-heart, there is real opportunity for owner-occupiers as well as investors looking to deploy fresh capital to purchase assets at historically low prices.”
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