Cushman & Wakefield Reports: Westchester County Office Market Continues To Improve In Third Quarter
14 Oct, 2005, White Plains, NY
Outlook Strong For Remainder Of Year
County sees decrease in large blocks of available space; rents expected to rise
The Westchester County office market continued to improve in the third quarter, with the county benefiting in large part from active tenant demand, a decrease in large, contiguous blocks of available space and the minimal number of sublets on the market, according to commercial real estate services firm Cushman & Wakefield.
Despite large blocks of space causing surges in the vacancy rate in 2004, the county on whole has positively absorbed 62,678 square feet of office space this year.
The overall vacancy rate in Westchester County ended the third quarter at 14.8% while the sublease vacancy rate registered at 1.6%, both the lowest levels recorded since mid-year 2001. Strong leasing activity continued to drive vacancy rates down across the county.
The tightening supply of office space in Westchester County raises the possibility that the market may be reaching an inflection point. Since the office market turned downward in 2001 and sublease space inundated the market, tenants have held all of the bargaining chips. In 2005, large blocks of available space have disappeared, sublease space is a virtual non-factor and there is a robust pipeline of tenants. These indicators show the advantage may swing in favor of owners, providing the opportinity to increase rental rates and curtail generous concessions used to attract tenants. Year-to-date, however, this has not been the case relative to rental rates. At the end of the third quarter, asking rental rates decreased to $28.36 per square foot (psf) versus $28.80 psf at the end of 2004.
"Companies in the market for large blocks of high quality office space in Westchester are going to see a tightening on the supply side," said Jim Fagan, senior managing director and head of Cushman & Wakefield's Westchester County, Fairfield County and Long Island offices. "Year-to-date we've seen an increase in tenants in the market, resulting in a decline in the availability of large blocks of office space, a trend which is expected to continue into next year. As some of these large transactions come to fruition, we expect Westchester County vacancy rates to drop and effective rents to increase."
800 Westchester Avenue was one of the large blocks of space that led to negative absorption and a dramatic rise in the vacancy rate in 2004. Year to date the property has been a virtual lightning rod for leasing activity, with a number of larger deals expected to close. Additionally, there was a dramatic decrease in available office space at the Reader's Digest site in Pleasantville as the property's new owner demolished a portion of the office space for redevelopment.
A strong burst of leasing activity took place during the third quarter 2005 in the White Plains Central Business District. The overall vacancy rate dropped to 13.9%, the lowest in the county with the exception of the Southern submarket. Major leases signed by Blue Sky Studios at 44 South Broadway for 36,079 square feet and Misys International at 123 Main Street for 29,400 square feet) led to 97,702 square feet of positive overall absorption in the submarket and a drop in vacancy of 1.6 percentage points.
The investment sales market, while slow through the first three quarters, will undoubtably end 2005 and begin 2006 in strong fashion with more than 3.3 million square feet of office space currently under contract or being marketed, representing an estimated $531 million in capital. The largest building sale that closed during the third quarter was 2-4 Gannett Drive, which was purchased by Heritage Property Trust for $42.5 million, or $200.94 psf. Notable buildings on the market or under contract include: 711 Westchester Avenue, Saxon Woods Corporate Center and the 16-building Eastridge portfolio.
"Continued low interest rates and the attractiveness of real estate as an investment vehicle are fueling the sales market," said Mr. Fagan.
Cushman & Wakefield is the world's largest privately held real estate services firm. Founded in 1917, the firm has 189 offices in 57 countries around the globe, and 11,000+ talented professionals. Cushman & Wakefield delivers integrated solutions by actively advising, implementing and managing on behalf of landlords, tenants, and investors through every stage of the real estate process. These solutions include helping clients to buy, sell, finance, lease, and manage assets. C&W also provides valuation advice, strategic planning and research, portfolio analysis, and site selection and space location assistance, among many other advisory services. To find out more about Cushman & Wakefield, please call 1-800-376-3133.
Contact: Alison Miller