Westchester Office Market Continues to Struggle
RYE BROOK, NY -- Cushman & Wakefield released its first quarter 2012 report for the Westchester County office market on April 17 which indicated that market fundamentals remained flat at the beginning of the year.
Although there was a small increase in vacancy and a decrease in leasing activity, the market suffered from large amounts of sublease space added to the market in the first quarter.
Countywide, the Class-A overall vacancy rate increased to 21.1%, a 1.9 percentage point increase over the 19.2% overall vacancy achieved in the first quarter of 2011 and a 1.2 percentage point increase over the 19.9% overall vacancy rate recorded at year-end 2011.
The White Plains Non-CBD’s Class-A overall vacancy rate continues to be the highest in the county at 27.6%. It increased from last quarter’s 23.7% by 3.9 percent points, primarily due to the 222,626 square feet of space added to the market when Starwood Hotels & Resorts completed its relocation to 333 Ludlow Street in Stamford, CT. There was also 36,000 square feet of data space from IBM at 800 Westchester Ave. that was converted to office space and added to the market this quarter.
The Eastern submarket also saw a significant increase in the Class-A overall vacancy rate, rising 24.4% from 18.0% in the first quarter of 2011 and 12.6% from 19.9% at year-end 2011 to the current 22.4%. Contributing to the overall vacancy increase was the 60,000 square feet of sublease space at 440 Mamaroneck Ave. in Harrison that Bank of NY Mellon put on the market, along with the 22,000 square feet of sublease space from Morgan Stanley at 4 Manhattanville Road in Purchase. In contrast, 59,000 square feet of sublease space was removed from the market by Westcon at 520 White Plains Road in Tarrytown, helping to decrease the Central submarket’s Class-A overall vacancy rate from last year’s 19.9% to the current 17.7% rate.
Countywide, Class-A leasing activity in the first quarter was at 230,003 square feet, slightly lower that the 294,692 square feet leased in the fourth quarter of 2011, but somewhat higher than the 213,811 square feet leased in the first quarter of 2011. This level of leasing activity has been consistently flat since the third quarter of 2008, when market fundamentals were more robust.
The largest office transaction of the quarter was TAL International’s 27,718-square-foot lease renewal at 100 Manhattanville Road in Purchase, while the largest new office lease was Voyetra Turtle Beach’s 20,817-square-foot transaction at 100 Summit Lake Drive in Valhalla.
Other significant deals in the first quarter were Byram Healthcare’s 27,011-squarefoot expansion and renewal at 120 Bloomingdale Road in White Plains, Greywolf Capital Management’s 18,531-squarefoot renewal at 4 Manhattanville Road in Purchase, Akzo Nobel’s 17,500-squarefoot lease at 120 White Plains Road in Tarrytown, and Regus Workspaces’ 14,297-square-foot lease at 777 Westchester Ave. in White Plains.
Class-A overall absorption skyrocketed this quarter to negative 403,194 square feet almost quadrupling from last quarter’s negative 51,990 square feet and a more than 10-fold rise from the negative 35,892 square feet recorded in the first quarter of 2011. This marked increase in overall absorption reflects the combination of large amounts of sublease space added to the market, with the flat leasing activity and minimal tenant relocations from outside the county.
Direct average asking rent for Class-A office space in the county decreased by $1.23 per square foot over last year, from $30.87 psf to the current $29.64 psf. The Northern submarket’s Class-A rental rate experienced the most significant yearover- year drop of 11.5% from $28.21 psf in 1Q-11 to the current $24.96 psf. The White Plains Non-CBD submarket also saw a decline in Class-A direct average asking rents dropping 9.2% from last year’s $31.42 psf to the current $28.52 psf. Showing strength, the White Plains CBD’s Class-A overall asking rent reached its highest level since the beginning of 2009 —$33.92 psf —an increase of $0.92 psf over last year.
“Although the Westchester County real estate market continued its malaise through the first quarter of 2012, two drivers are expected to boost market activity in the near future,” said Jim Fagan, senior managing director and market leader of Cushman & Wakefield’s Fairfield and Westchester County region. “The first is adaptive re-uses for existing office product including medical, residential and retail; the second is the increased economic activity that we believe will be created by the new Tappan Zee Bridge project. These factors point to lower vacancy and increased leasing activity in the future.”
The White Plains CBD’s overall vacancy rate for Class-A space averaged 17.1%, on par with last quarter and a slight increase from the 16.5% vacancy rate recorded last year. Class-A leasing activity in the CBD in the first quarter was 48,476 square feet, almost four times the leasing from the disappointing 13,225 square feet leased last quarter, but comparable to the 44,732 square feet leased last year.
Class-A leasing activity in the White Plains Non-CBD totaled only 48,209 square feet, a 70.7% decrease over the 164,430 square feet leased in the fourth quarter of 2011 but more than double the 23,819 square feet leased one year ago.