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Notable absence of large deals in second quarter of 2013 fuels small drop in overall vacancy rates, minimal change in overall average asking rental rates throughout Westchester County, NY
STAMFORD, CT, July 12, 2013 — Jones Lang LaSalle reported that the Westchester County, N.Y., real estate market saw a minor increase in vacancy rates and very little change in overall asking rental rates at midyear 2013. While leasing activity remained moderate, the county saw a notable absence of big transactions, posting just one deal larger than 20,000 square feet this quarter.
“The past six months have seen little movement in Westchester County’s economic outlook, particularly in the labor market,” said Chris O’Callaghan, managing director and Westchester County market lead for Jones Lang LaSalle. “While the numbers show some hiring is taking place, local businesses remain cautious. We have even seen some downsizings. The county remains a highly-desirable location to both live and work, however, and once employment picks up, we expect the office market to reflect that growth.”
Although Westchester County saw some employment growth, vacancy rates rose slightly throughout Westchester County at midyear 2013. This upward shift resulted from the combination of tenants exiting the market completely, such as The Navigators Group Inc., or downsizing by firms while relocating within the market. The county’s overall vacancy rate rose to 18.7 percent in the second quarter of 2013, increasing 1.1 percent (or 0.2 percentage points) from the overall vacancy rate of 18.5 percent the previous quarter. The Class A vacancy rate grew to 20.7 percent this quarter, an increase of 1.0 percent (or 0.2 percentage points) from the Class A vacancy rate of 20.5 percent in the first quarter of the year.
After posting two consecutive quarters of increases, average asking rental rates remained mostly stable throughout Westchester County at midyear 2013, as building owners moderate rent growth to remain competitive in a weak market. Overall rents barely changed in the second quarter of 2013, rising to $26.10 per square foot from overall rates of $26.09 per square foot the previous quarter. Rents for the county’s Class A properties fell slightly to $26.64 per square foot this quarter, a drop of 1.0 percent from Class A rents of $26.91 per square foot in the first quarter of the year.
Westchester County leasing activity remained at moderate levels in the second quarter of 2013, totaling less than 530,000 square feet. This compares to deal volume of slightly more than 500,000 square feet in the first quarter of the year, which marked a decline from the 870,000 square feet of space leased in the final quarter of 2012. At the same time, the county saw a notable absence of deals larger than 20,000 square feet this quarter. While large lease transactions are not commonplace in Westchester County, the area typically sees at least a handful of deals in the 20,000-square-foot range each quarter.
The I-287 East Corridor recorded the largest number of deals this quarter, emphasizing the shifting preference of Westchester-focused tenants to this submarket from the White Plains CBD/Railroad submarket. In terms of industry, professional and business services drove velocity, accounting for nearly a third of leasing activity at midyear 2013. New transaction volume was on par with renewals, in contrast with the first quarter when new leasing dominated activity.
Three of the top four transactions closed in the second quarter of the year were new leases:
ENT and Allergy Associates’ expansion deal, and New York Medical College’s purchase of the 248,000-square-foot 19 Skyline Drive in the Westchester North submarket highlight the rapidly growing presence of health services in Westchester County. The deals also tie into the county’s continued investment in the biotech and life-science sectors.
White Plains CBDThe White Plains CBD posted an increase in vacancy rates in all building classes, as tenants eye the more-desirable Fairfield County transit-hub submarkets. The boost in Class A vacancy rates resulted from Reader’s Digest putting two floors at 44 South Broadway on the market for sublease. The overall vacancy rate rose to 22.5 percent in the second quarter of 2013, an increase of 4.2 percent (or 0.9 percentage points) from the overall vacancy rate of 21.6 percent the previous quarter. The submarket’s Class A vacancy rate grew to 24.4 percent this quarter, an increase of 3.0 percent (or 0.7 percentage points) from the Class A vacancy rate of 23.7 percent in the first quarter of the year.
Overall rents in the White Plains CBD dropped to $27.95 per square foot in the second quarter of 2013, a decrease of 2.9 percent from overall rates of $28.79 per square foot the previous quarter. Rents for the submarket’s Class A product fell to $28.49 per square foot this quarter, a decrease of 3.1 percent from Class A rates of $29.39 per square foot in the first quarter of the year.I-287 East CorridorThe entire I-287 corridor recorded a significant increase in vacancy rates at midyear 2013, fueled in part by The Navigator Group’s relocation to Stamford, Conn.; space shuffling by The Journal News and Xylem Inc.; and the addition of a large block of available space coming in Rye. The overall vacancy rate in the I-287 East Corridor rose to 18.4 percent in the second quarter of 2013, an increase of 5.1 percent (or 0.9 percentage points) from the overall vacancy rate of 17.5 percent the previous quarter. The submarket’s Class A vacancy rate grew to 19.6 percent this quarter, an increase of 4.8 percent (or 0.9 percentage points) from the Class A vacancy rate of 18.7 percent in the first quarter of the year.
Tepid demand and limited hiring continue to weaken landlords’ position, driving down asking rents in less-desirable buildings. In the submarket’s premium buildings, however, steady absorption helped stabilize rates. Overall rents fell to $27.28 per square foot in the second quarter of 2013, a decrease of 1.6 percent from overall rates of $27.71 per square foot the previous quarter. Rents for the submarket’s Class A product dropped to $27.26 per square foot this quarter, a decrease of 1.7 percent from Class A rates of $27.72 per square foot in the first quarter of the year.
JLL is a leader in the New York tri-state commercial real estate market, with more than 1,600 of the most recognized industry experts offering brokerage, capital markets, property/facilities management, consulting, and project and development services. In 2012, the New York tri-state team completed approximately 23.8 million square feet in lease transactions, arranged capital markets transactions valued at $1.57 billion, managed projects valued at nearly $7.0 billion, and oversaw a property and facilities management portfolio of 102.1 million square feet and an agency leasing portfolio of 76.0 million square feet.
About Jones Lang LaSalleJones Lang LaSalle (NYSE:JLL) is a professional services and investment management firm offering specialized real estate services to clients seeking increased value by owning, occupying and investing in real estate. With annual revenue of $3.9 billion, Jones Lang LaSalle operates in 70 countries from more than 1,000 locations worldwide. On behalf of its clients, the firm provides management and real estate outsourcing services to a property portfolio of 2.6 billion square feet and completed $63 billion in sales, acquisitions and finance transactions in 2012. Its investment management business, LaSalle Investment Management, has $47.7 billion of real estate assets under management. For further information, visit www.jll.com.
George Shea, Mark Faris - Shea Communications