William V. Cuddy, CBRE Group Inc.’s executive vice president, said it’s finally happened: “While it’s taken decades to declare, Westchester is a landlord’s market.”
Cuddy was discussing CBRE’s first-quarter Westchester County office market report, which found the county recorded about 205,000 square feet of total leasing activity during the first quarter. That number is up from the previous two quarters, but it still represented the weakest leasing start to a year since 2009.
Still, CBRE took a positive view of the office market, citing a low availability rate, growth in occupancy and average asking rents at a 15-year high.
“The quarterly transactional activity was weak, if not anemic,” Cuddy said. “But the interesting item we’re pointing out is that the overall market remains robust and strong.”
The real estate firm pointed to an availability rate of 22 percent, with roughly 5.8 million square feet out of the county’s 26.7 million-square-foot market available. That’s down from a peak of 6.9 million square feet available in the spring 2016.
CBRE also reported the county had about 60,000 square feet of positive net absorption, which follows a year in which the county had more than 500,000 square feet of total occupancy gains.
The biggest factor helping the market, Cuddy said, is the demand for mixed-use development. Landlords have taken huge chunks of office property along Interstate 287 off the market, as well as in downtowns such as White Plains.
“Residential, retail and recreational uses are replacing old and obsolete office,” Cuddy said. “Poorly performing office properties are being cannibalized for other uses.”
“By repurposing vacant office space, developers reduce availability, causing rents to rise, while also providing the community with much-needed residential units, retail space and health and wellness facilities,” Cuddy said.
According to the CBRE report, White Plains in particular has “benefited greatly” from adaptive repurposing. The submarket’s availability rate dropped from 24.4 percent in the second quarter of 2016 to 17.6 percent during the first quarter of this year.
Growth in asking rents is strongest in the White Plains Central Business District, where the average asking price of $34.84 per square foot is up 7 percent from last year’s first-quarter numbers, according to CBRE. Rents are also up in the county’s southern and eastern submarkets.
However, rents are still sluggish in the northern submarket. Office landlords in municipalities such as Somers, Armonk and Mount Kisco are asking on average $28.63 per square foot, down 0.6 percent from 2017’s first-quarter numbers, CBRE reported. The northern submarket’s 37.5 percent availability rate is well above the county’s next highest, which is 20.3 percent on the county’s west side.
The market report from Cushman & Wakefield painted a less positive picture. The firm recorded the overall vacancy rate at 24.6 percent, up from 20.6 percent in the first quarter in 2017.
Average asking rents in the county went down, as measured by Cushman & Wakefield’s numbers, at an average of $28.37 per square foot. That’s about $1.50 below the first quarter 2017 average.
Still, Cushman & Wakefield’s report predicted that, “despite the significant rise in vacancy, demand is projected to remain stable throughout the year, while vacancy is expected to decrease, most notably in more urban submarkets.”
Landlords in urban submarkets such as downtown White Plains have “shown a willingness to reinvest in and repurpose existing assets,” said Jim Fagan, a managing principal at Cushman & Wakefield and its market lead for Connecticut
That reinvestment has resulted in added amenities and renovations making the buildings more attractive.
“These actions, in correlation with incoming residential properties and the walkability and growing ‘live-work-play’ appeal of that submarket, has been met with tenant enthusiasm — as well as tightened vacancy rates and higher average asking rents,” Fagan said.
Downtown White Plains was also home to the quarter’s largest leasing transaction, according to Colliers International Group Inc. Willis Towers Watson renewed a lease for 44,713 square feet at the Westchester One tower, 44 S. Broadway, which accounted for roughly half of the White Plains CBD’s activity this quarter, Colliers reported.
While Colliers also noted the first quarter was a quiet one, “a variety of occupiers in the market foreshadows a strong 2018,” predicted Sean Cullen, director of research for Colliers’ Stamford office.
But he added that “uncertainty in the broader economy, as well as issues with Westchester’s aging inventory, are potential mufflers for the coming quarters.”
The county’s other top deals to start the year were mostly modest in size.
A 35,000-square-foot lease by the Metropolitan Transportation Authority at 101 Executive Blvd. in Elmsford marked the county’s second largest deal, as reported by Cushman & Wakefield.
Other major deals, reported by CBRE, include a 24,000-square-foot lease by CareMount Medical Group at 100 S. Bedford Road in Mount Kisco; a 22,000-square-foot lease by Montefiore Health System at 20 Cedar St. in New Rochelle; a 20,531-square-foot renewal by Mass Mutual Life Insurance Co. at 565 Taxter Road in Elmsford and a 15,500-square-foot lease by USI Insurance that had the company move to a larger space at 333 Westchester Ave. in White Plains.