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 White Plains, NY - Cushman & Wakefield has released its mid-year 2008 report for the Westchester County commercial real estate market which remained remarkably strong despite a dip in leasing activity, a slight decrease in vacancy rates, negative absorption, and a significant slowdown in investment sales.
As a whole, the market remained supply constrained, with no significant sublease space added to the inventory. Contrary to typical market conditions, tenant demand for space in the 5,000 to 25,000 square-foot range has slowed; however, there are a significant number of tenants in the market with requirements upwards of 100,000 square feet (sf).
Overall Class-A vacancy rates registered at 16.7% for Class-A space, down from 17.6% recorded in the first quarter and on par with 16.8% reported in the second quarter of 2007. At the close of the second quarter, Class-A vacancy rates in the White Plains CBD registered at 13.4% up significantly from the first quarter rate of 12.6% but below the 14.6% recorded in the second quarter of 2007.
At mid-year, overall average Class-A rental rates for the county averaged $31.89 per square foot (psf), on par with the $31.37 psf recorded a year ago. The average Class-A rent for the White Plains CBD was $34.96 psf, also on par with the $34.39 psf average in the second quarter of 2007. Some office properties in the White Plain CBD are commanding in excess of $40 psf.
“Despite increased indications of market softness, the office leasing market in Westchester County continued to hold its own during the first half of the year,” said Jim Fagan, senior managing director, and head of Cushman & Wakefield’s Fairfield and Westchester County region. “As with most markets, employment softness in 2008 is expected to lead to a slight increase in vacancy but due to extreme limits in new supply we see the vacancy heading down again some time in 2009.”
Rents are predicted to remain steady throughout the year, but tenant concessions are likely to increase as landlords recognize that opportunities to lease space will be flat. The current trend among property owners is to renovate existing structures rather than to construct new ones. New construction in the county has become less feasible, especially without tenant commitments.
Mr. Fagan said, “Despite the negative outlook for the economy and short-term setbacks for the market, the supply-constrained nature of the Westchester County office market will enable landlords to both weather the current economic environment and continue to prosper. It’s definitely a tenant’s market though, where landlords are becoming more aggressive with concessions.”
Leasing activity in the county for Class-A space year-to-date totaled 549,756 sf, down significantly from 756,752 sf leased in the first half of 2007. Overall 232,767 sf was leased in the second quarter compared with 347,973 sf leased in the second quarter of 2007. The Manhattan market’s influence on Westchester and Fairfield Counties has diminished significantly and the expected leasing “spillover” effect was virtually nonexistent during the first half of the year.
Significant transactions that closed during the second quarter included EMC Corporation, which leased 41,327 sf at 1133 Westchester Avenue in White Plains; New York State which leased 32,565 sf at 90 South Ridge Street in Rye Brook; New Edge Group which leased 18,045 sf at 44 South Broadway in White Plains; The Schwartzberg Companies, which leased 17,000 sf at 4 West Red Oak Lane in Harrison; and EquiSearch Services, which leased 13,810 sf at 555 Taxter Road, Elmsford.
Overall absorption for Class-A space year to date totaled negative 239,677 sf, compared with a figure of negative 42,344 sf for the first half of 2007.
The investment sales market tapered off during the first half of the year with market indicators point toward a decrease in asking prices. The ripple effect from the sub-prime mortgage phenomenon has affected investment sales more than office leasing, as the financing of commercial properties has become more expensive. Conduit lending has evaporated and banks and other institutions have stepped in, but not as aggressively as the conduits. The impact has vastly affected the market where the largest sale by far to close in Westchester County during the second quarter was Harrison Court Medical Center, which was sold by RPW Group to ProMed Properties for $53.3 million.
While the market outlook is negative, the longer terms of today’s lease contracts, combined with current demand (due to lease expirations) will sustain the market over the next six months. Investment sales will continue at a slower pace due to the constraints of the debt markets. New construction will become less of a possibility, especially without tenant commitment. Landlords will continue to renovate existing structures rather than to construct new ones.
“Unlike certain markets in the tri-state region that are home to a high percentage of companies in the financial services sector, Westchester County is stable due to the assorted mix of businesses based here,” said Mr. Fagan, The unique nature of the area’s employee talent pool makes us stronger in good times and more resilient in difficult times, thus insulating the real estate markets.”
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