STAMFORD, CT — Jones Lang LaSalle reported that the Westchester County, N.Y., commercial office market remained on an even keel in the third quarter of 2013. A pick-up in the number of big deals kept vacancy rates steady and persistent leasing activity gave building owners confidence to raise average asking rental rates.
"Westchester County players have been slow to understand they face global competition for tenants in today's market,” said Chris O’Callaghan, managing director and Westchester County market lead for JLL. “To compete for world-class tenants, the county needs world-class office product, which is in short supply here. While there are important initiatives underway to help position the county more strategically, they must be backed by a long-term commitment. Rezoning along the I-287 Corridor and recent repurposing will help on the supply side by eliminating obsolete buildings but the lack of near-term demand presents some challenges. The county needs to prioritize business attraction and retention efforts for the office market to gain some steam.”
A pick-up in larger transactions helped steady vacancy rates throughout Westchester County in the third quarter of 2013. Leasing activity was led by financial services firms, and then followed by a mix of health services, legal and professional and business services firms. The county’s overall vacancy rate remained unchanged at 18.7 percent in the third quarter. During the past year, Westchester County’s overall vacancy rate fell 1.1 percent (or 0.2 percentage points) from 18.9 percent in the third quarter of 2012.
The Class A vacancy rate fell to 20.5 percent in the third quarter, a decrease of 1.0 percent (or 0.2 percentage points) from 20.7 percent the previous quarter. During the past year, the county’s Class A vacancy rate grew 1.5 percent (or 0.3 percentage points) from 20.2 percent in the third quarter of 2012.
A combination of higher-quality space coming online and greater confidence on the part of Westchester County building owners fueled a slight increase in overall average asking rental rates in the third quarter of the year. Overall rents rose to $26.26 per square foot in the third quarter, an increase of less than 1.0 percent from $26.10 per square foot the previous quarter. During the past year, overall rates grew 2.8 percent from $25.54 per square foot in the third quarter of 2012.
Westchester County’s Class A rents rose to $26.92 per square foot in the third quarter, an increase of 1.1 percent from $26.64 per square foot the previous quarter. During the past year, Class A rates grew less than 1.0 percent to $26.68 per square foot in the third quarter of 2012.
Westchester County posted slightly more than 300,000 square feet in leasing activity in the third quarter, dipping below levels posted during the previous two quarters. The county recorded less than 530,000 square feet in deal volume at midyear 2013 and more than 500,000 square feet in the first quarter of the year. Although there was a flurry of smaller transactions, there was a pick-up in larger transactions in the third quarter, compared with the single major transaction signed during the previous quarter.
The I-287 East Corridor was again the major player, recording the majority of volume while the I-287 West Corridor also emerged as a strong location. Among the top 10 transactions recorded this quarter, eight were new deals, and half were located in the I-287 East Corridor. The deals include:
* Scarsdale Medical Group LLP signed a new lease for 34,216 square feet at 600 Mamaroneck Avenue in the I-287 East Corridor submarket.
* Knighted LLC inked a new lease for 30,000 square feet at 555 Taxter Road in the I-287 West Corridor submarket.
* Informa Investment Solutions Inc. completed a renewal for 26,191 square feet at 4 Westchester Park Drive in the I-287 East Corridor.
* USI Insurance Services signed two new leases, one for 18,302 square feet at 200 Summit Lake Drive in the I-287 West Corridor submarket and another for 9,500 square feet at 333 Westchester Avenue in the White Plains East submarket.
* Cabanillas & Associates, P.C. inked a new lease for 15,000 square feet at the newly renovated 120 Bloomingdale Road in the White Plains CBD/Railroad submarket.
* Tokyo Leasing Corp. completed a new lease for 14,500 square feet at 2500 Westchester Avenue in the I-287 East Corridor.
* ANC Sports Enterprises, LLC signed a renewal for 11,538 square feet at 2 Manhattanville Road in the I-287 East Corridor.
White Plains CBD
For the first time this year, the White Plains CBD posted a decrease in both overall and Class A vacancy rates in the third quarter of 2013. The submarket boasted 20,894 square feet of positive absorption this quarter, although year-to-date absorption remains in negative territory. In what could possibly signal the start of a rebound for the submarket, 15,000 square feet of space was absorbed by one tenant at 120 Bloomingdale Road — the building was recently renovated and well positioned to attract demand.
The overall vacancy rate in the White Plains CBD fell to 22.4 percent in the third quarter, a decrease of less than 1.0 percent (or 0.1 percentage points) from 22.5 percent the previous quarter. During the past year, the overall vacancy rate rose 1.8 percent (or 0.4 percentage points) from 22.0 percent in the third quarter of 2012.
The submarket’s Class A vacancy rate dropped to 24.0 percent in the third quarter, a decrease of 1.6 percent (or 0.4 percentage points) from 24.4 percent the previous quarter. During the past year, the White Plains CBD vacancy rate rose 8.1 percent (or 1.8 percentage points) from 22.2 percent in the third quarter of 2012.
The White Plains CBD enjoyed a boost in average asking rental rates this quarter, partly due to the absorption of lower-price sublease space during the previous quarter. Continued leasing activity has also given building owners some leverage to increase rates. Overall rents in the White Plains CBD rose to $28.64 per square foot in the third quarter, an increase of 2.5 percent from $27.95 per square foot the previous quarter. During the past year, overall rates grew 3.2 percent from $27.74 per square foot in the third quarter of 2012.
Rents for the submarket’s Class A product rose to $29.69 per square foot in the third quarter, an increase of 4.2 percent from $28.49 per square foot the previous quarter. During the past year, Class A rents grew 1.7 percent from $29.19 per square foot in the third quarter of 2012.
I-287 East Corridor
The I-287 corridor recorded minor increases in vacancy rates in the third quarter of 2013, fueled in part by a number of smaller spaces coming online. Although persistent leasing activity does not necessarily mean other tenants are not giving back space, it does signal that new space to the market may not sit available as long.
The overall vacancy rate in the I-287 East Corridor rose to 18.8 percent in the third quarter, an increase of 2.2 percent (or 0.4 percentage points) from 18.4 percent the previous quarter. During the past year, the overall vacancy rate fell 10.5 percent (or 2.2 percentage points) from 21.0 percent in the third quarter of 2012.
The submarket’s Class A vacancy rate grew to 19.9 percent in the third quarter, an increase of 1.5 percent (or 0.3 percentage points) from 19.6 percent the previous quarter. During the past year, the Class A vacancy rate dropped 10.8 percent (or 2.4 percentage points) from 22.3 percent in the third quarter of 2012.
Similar to the previous quarter, tepid demand and limited hiring in the third quarter of 2013 continued to weaken landlords’ position, driving down asking rents in less-desirable buildings. In the submarket’s premium buildings, however, steady absorption helped increase rates. Overall rents in the I-287 East Corridor rose to $27.97 per square foot in the third quarter, an increase of 2.5 percent from $27.28 per square foot the previous quarter. During the past year, overall rates grew 3.2 percent from $27.10 per square foot in the third quarter of 2012.
Rents for the submarket’s Class A product grew to $27.85 per square foot in the third quarter, an increase of 2.2 percent from $27.26 per square foot the previous quarter. During the past year, Class A rates rose 2.3 percent from $27.22 per square foot in the third quarter of 2012.
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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 LaSalle
Jones 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 $46.3 billion of real estate assets under management. For further information, visit www.jll.com.