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Westchester County, NY, sees boost in average asking rental rates, drop in vacancy rates; unusual number of large tenants remain out in market for space
STAMFORD, CT, January 24, 2013 — Jones Lang LaSalle reported that New York’s Westchester County real estate market ended the year on a positive note, although the county’s office market remained weaker compared with 2011. The county saw its first increase in average asking rental rates all year, vacancy rates fell in all building classes and leasing activity more than doubled the volume seen in the previous quarter.
“Throughout the year, the Westchester County economy has shown itself to be resilient,” said Chris O’Callaghan, managing director and Westchester County market lead for Jones Lang LaSalle. “The redevelopment and repositioning of product from conventional office space to other, better uses are resonating with Westchester County municipalities and residents. People have become more understanding of the tax burden that an empty, non-performing asset presents for their tax base. This has been the most positive sign for Westchester County economic development in years. It appears, however, that the labor market is showing some retraction. While the county’s economic development arm and the Industrial Development Agency continue to be active in attracting new business to the area, the overall general health of the local economy is cause for concern.”
Westchester County saw overall vacancy rates drop in all building classes in the final quarter of the year. With the exception of the third-quarter of 2012, the county posted a decrease in vacancy rates in three of the four quarters this year. The overall vacancy rate fell slightly to 18.5 percent in the fourth quarter of 2012, a decrease of 2.1 percent (or .4 percentage points) from the overall vacancy rate of 18.9 percent in the third quarter of 2012. The county’s Class A vacancy rate remained flat at 20.0 percent this quarter, dropping 1.0 percent (or .2 percentage points) from the Class A vacancy rate of 20.2 percent the previous quarter.
In the final quarter of the year, Westchester County posted an increase in average asking rental rates for the first time in 2012. Overall rents rose to $25.74 per square foot in the fourth quarter of 2012, an increase of less than 1.0 percent from overall rents of $25.54 per square foot the previous quarter. Rates for the county’s Class A properties grew to $26.94 per square foot this quarter, an increase of 1.0 percent from Class A rents of $26.68 per square foot in the third quarter of 2012.Westchester County posted a significant rebound in leasing velocity in the fourth quarter of 2012. The county saw nearly 870,000 square feet of office space leased this quarter, compared with 390,000 square feet in the third quarter of 2012. The burst in activity was driven by PepsiCo’s 234,281-square-foot sublease at 1111 Westchester Avenue, the former headquarters of Starwood Hotels & Resorts, where the company will operate while PepsiCo’s own headquarters facility is renovated. The heavy deal volume helped push year-to-date leasing activity to 2.1 million square feet, which marked a decline from the 2.6 million square feet leased throughout Westchester County in 2011.
“There continues to be a resurgence in demand from larger users and current outstanding requirements echo this trend, which bodes well for future activity,” said O’Callaghan. “Fourth quarter transaction volume as measured by square feet was skewed towards new deals, but the number of transactions were split fairly evenly between new leases and renewals. The previous quarter showed heavier renewal volume so the uptick in new transactions in terms of square footage is a positive indicator for the market.”
Requirements for office space in Westchester County currently total more than 800,000 square feet. The majority of space users were focused on the White Plains CBD/Railroad submarket, with nearly 450,000 square feet of requirements in that area alone. In a shift from typical demand patterns led by professional and business services firms, financial services firms, with approximately 225,000 square feet in outstanding requirements, have been dominating the space users in the market.
The White Plains CBD saw overall vacancy rates fall for the first time since the first quarter of 2012. The overall vacancy rate fell to 21.4 percent in the fourth quarter of 2012, a drop of 2.7 percent (or .6 percentage points) from the overall vacancy rate of 22.0 percent the previous quarter. The submarket’s Class A vacancy rate rose to 22.3 percent this quarter, increasing less than 1.0 percent (or .1 percentage points) from the Class A vacancy rate of 22.2 percent in the third quarter of 2012.
Overall rents in the White Plains CBD rose to $28.45 per square foot in the fourth quarter of 2012, an increase of 2.6 percent from overall rents of $27.74 per square foot the previous quarter. Rates for the submarket’s Class A product grew to $30.10 per square foot this quarter, a boost of 3.1 percent from Class A rents of $29.19 per square foot in the third quarter of 2012.
Due to significant leasing activity along the I-287 East Corridor, vacancy rates declined for the second consecutive quarter. The overall vacancy rate fell to 18.4 percent in the fourth quarter of 2012, a decrease of 12.4 percent (or 2.6 percentage points) from the overall vacancy rate of 21.0 percent in the third quarter of 2012. The submarket’s Class A vacancy rate dropped to 19.5 percent this quarter, a decrease of 12.6 percent (or 2.8 percentage points) from the Class A vacancy rate of 22.3 percent in the third quarter of 2012.
“Adaptive reuse of functionally obsolete office buildings along the I-287 East Corridor continues to comprise the bulk of construction activity in Westchester County,” said “O’Callaghan. “We expect this trend to pick up steam, as rezoning legislation is underway for one of the county’s more dated office corridors along the eastern portion of I-287.”Despite continued strong interest from space users, the I-287 West Corridor recorded little movement in average asking rental rates in the final quarter of the year. Overall rents dropped slightly to $26.95 per square foot in the fourth quarter of 2012, a decrease of less than 1.0 percent from overall rents of $27.10 per square foot the previous quarter. Rates for the submarket’s Class A product fell to $27.07 per square foot this quarter, a decrease of less than 1.0 percent from Class A rents of $27.22 per square foot at midyear 2012.
JLL is a leader in the New York tri-state commercial real estate market, with more than 1,750 of the most recognized industry experts offering brokerage, capital markets, property/facilities management, consulting, and project and development services. In 2011, the New York tri-state team completed approximately 15.9 million square feet in lease transactions, arranged capital markets transactions valued at $1.57 billion, managed projects valued at more than $6.8 billion, and oversaw a property and facilities management portfolio of 63.6 million square feet and an agency leasing portfolio of 49.8 million square feet.
About Jones Lang LaSalleJones Lang LaSalle (NYSE: JLL) is a financial and professional services firm specializing in real estate. The firm offers integrated services delivered by expert teams worldwide to clients seeking increased value by owning, occupying or investing in real estate. With 2011 global revenue of $3.6 billion, Jones Lang LaSalle serves clients in 70 countries from more than 1,000 locations worldwide, including 200 corporate offices. The firm is an industry leader in property and corporate facility management services, with a portfolio of approximately 2.1 billion square feet worldwide. LaSalle Investment Management, the company’s investment management business, is one of the world’s largest and most diverse in real estate with $47 billion of assets under management. For further information, please visit www.joneslanglasalle.com.
George Shea, Mark Faris - Shea Communications