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White Plains, NY -- Cushman & Wakefield has released its third quarter 2010 report for the Westchester County commercial real estate market, showing a market with minimal leasing activity that reflects an economy trying to regain its footing.
There was a slight increase in overall vacancy and absorption, albeit negative, but improvement over the previous quarter throughout the county.
Class-A and B total new leasing activity for the quarter registered 224,829 square feet (sf), an increase over the 194,426 sf in 2Q-10 and 189,089 sf in 3Q-09. The Central and Eastern submarkets had the highest amount of Class-A leasing this quarter at 74,341 sf and 71,798, respectively.
The top three deals were Cardinal McCloskey Service’s lease of 18,245 sf at 115 Stevens Avenue in Valhalla; Westchester Plastic Surgery’s lease of 17,101 sf at 440 Mamaroneck Avenue in Harrison; and UTC Fire & Security’s lease of 15,246 sf at 6 Skyline Drive in Hawthorne.
There was almost 2 million square feet (msf) of leasing velocity in 2007, which slowed by 35% to a little more than 1.3 million square feet in 2008. In 2009, velocity decreased again to approximately 1 msf. Year-to-date leasing activity totaled approximately 720,000 square feet, which is on track to match last year’s anemic number.
There was a total of 4,343,132 sf of available Class-A space in Westchester as a whole, down from 4,583,233 sf at midyear and 4,396,589 sf a year ago. Topping the charts is the White Plains Non-Central Business District (CBD) with 1,108,316 sf of Class-A space on the market for lease. That number was followed by the Eastern submarket, which shows 1,005,542 sf of space available; and the White Plains CBD was third highest with 874,343 sf of Class-A space listed available.
Overall vacancies countywide for Class-A space decreased slightly to 20.3% down from 21.4% at midyear and on par with 20.5% recorded a year ago. In the White Plains CBD, the overall Class-A vacancy rate decreased slightly to 17.6 % from last quarter’s 17.9%, but dropped significantly from 3Q-09’s 24.4 %. The considerable decrease in the vacancy rate took place in 4Q-09 when ±273,000 sf was leased at Westchester One (44 South Broadway).
“As the unemployment rate begins to decrease and as jobs are added to the marketplace, office vacancy will decline,” said Jim Fagan, senior managing director and head of Cushman & Wakefield’s Fairfield & Westchester County region. “Positive momentum for landlords will start to take shape 12 months from now.”
While asking rental rates have remained in excess of $30 per square foot (psf) throughout the county, certain submarkets have fared better than others. Class-A buildings in the White Plains CBD have been able to keep their rents generally above the $30-psf watermark. Building quality and proximity to the train station seems to allow these properties to command higher rents than similar ones elsewhere in Westchester County. This $30 rent number can also be attained, albeit in only the very best buildings, outside of the White Plains area.
Class-A direct asking rents in Westchester County remained relatively stable this quarter averaging $30.88 psf, compared with $31.51 psf at midyear and $31.42 psf a year ago.
The highest rents commanded in the county were in the White Plains CBD, which averaged $32.98 psf, followed by the White Plains Non-CBD with an average Class-A rents of $31.14 psf.
Mr. Fagan said, “In general, most buildings have had to lower their taking rents from the market’s peak by as much as 30% in order to attract tenants. A-minus grade buildings, outside of the CBD find themselves competing for tenants predominantly on price and are forced to start rents in the low to mid $20s on a rent-per-square-foot basis.”
Absorption is one of the indicators used to see if the market is getting tighter or losing steam. In 2009, the Westchester County office market gave up 485,000 sf of space. In other words, 485,000 sf of space that was previously occupied, became unoccupied in 2009. This trend has continued in 2010, with a little more than 400,000 sf of previously occupied space going vacant (130,000 sf in the third quarter alone).
Overall absorption for Class-A space in Westchester County during the third quarter remained negative at 43,994 sf, but the number was an improvement over the second quarter figure of negative 235,085 sf, but unlike 3Q-09 when Class-A absorption was a positive 14,602 sf.
Class-A absorption in the White Plains CBD totaled negative 48,894 sf, which was an improvement over the total of negative 90,735 sf at midyear but considerably worse than the positive absorption figure of 20,848 sf in 3Q-09. The White Plains Non-CBD fared a bit better with Class-A absorption figures of negative 4,209 sf from negative 71,140 sf at midyear and negative 35,044 sf in 3Q-09. The Eastern submarket showed marked improvement in Class-A overall absorption at positive 29,895 sf compared with negative 46,700 at midyear and negative 40,380 sf a year ago.
INVESTMENT SALES:
There is a distinct gap between the buyers and sellers of commercial property in Westchester County. At the peak of the market, there were 24 sales of institutional properties totaling almost 5 msf. Year-to-date there have been no sales and not for the lack of capital, as it was for most of 2009. Making matters worse is the lack of investment properties currently on the market, although it is possible that several properties will be listed during the fourth quarter.
“Currently, the market has sufficient capital chasing product, however, most potential buyers are looking for distressed opportunities whereby they can purchase long-term assets at historically low pricing, and then profit handsomely when the market normalizes,” said Mr. Fagan. “The current owners and lenders are trying to hang on to their distressed properties in order to see how quickly the market returns.”
WESTCHESTER COUNTY ECONOMY:
As a location for corporate users, the Westchester County economy tends to reflect conditions in the national economy. As the national economy slowed in the second quarter of 2010, employment in Westchester County was flat. The local unemployment rate remained well below the national average at 7.3% in July, reflecting the health of New York City, where many local residents work. Overall, this county should mirror the general U.S. economy with moderate improvement in employment, particularly in the professional services sector as businesses gradually shift from holding employment flat to steadier gains.
THE FORECAST:
Westchester County’s office market is somewhat predictable. It will come back. As a vibrant suburb of New York City, Westchester County is a viable place to do business and will be for the foreseeable future. For the next 12 to 18 months, however, landlords will have to endure the lethargy of not enough tenant demand to increase pricing. In turn, tenants will enjoy the ability to attain rental rates on par with what they were 20 years ago.
