Westchester County’s office real estate market had a ho-hum second quarter, but analysts said the lack of leasing belies a solid market.
The county’s office market saw about 249,000 square feet of new leases and renewals in the second quarter, according to a quarterly market report from CBRE Group Inc. The 166,000 square feet of new leases was 45 percent below the county’s five-year quarterly average.
The availability rate, as measured by CBRE, remained flat, measuring at 22.1 percent compared with 21.9 percent last quarter.
Newmark Knight Frank’s quarterly Westchester report measured leasing activity at 770,000 square feet halfway through the year, down 22 percent from midyear 2017.
But despite slow leasing, Westchester brokerages say the office market is strong overall, noting the county has had seven straight quarters of occupancy gains and steady rents.
“Underlying potential in the Westchester market helped the average asking lease rate to remain stable, rising 1.3 percent from last quarter to $26.81 per square foot,” said Sean Cullen, director of research for Colliers International Group Inc.’s Stamford office. “This likely reflects the variety of occupiers in the market, although economic uncertainty, coupled with the market’s aging inventory, are weighing it down.”
A common refrain from Westchester real estate analysts the past two years is that the county’s market is distorted by large blocks of vacant space left behind by IBM and PepsiCo in Somers. Newmark Knight Frank (NKF) pointed the blame northward for a 21.9 percent availability rate in the office market, down only slightly from 22.2 percent last quarter.
“Without just a few uncompetitive blocks in the northern market, availability would lead to a more realistic figure of 14.2 percent,” the report noted. “This is the lowest level of availability the county has seen in nearly 15 years, driven by robust leasing in the White Plains CBD (Central Business District) as well as the shortage of quality inventory throughout the county.”
Mind the Gap
William Cuddy, CBRE Group Inc.’s executive vice president in Stamford, described the market as one of “haves and have-nots.”
“Well-located properties where landlords are making continued capital investments to enhance their assets are doing very well,” he said. “Tertiary locations that are not properly positioned continue to dramatically underperform.”
To exemplify that gap, Cuddy pointed to the spread between Class A and Class B rents in Westchester, a data point he and his fellow “real estate nerds” having been tracking closely. Average asking rents for buildings considered Class A quality space in the county were at $32.36 per square foot at the end of the second quarter, by CBRE’s numbers. The lesser Class B spaces, meanwhile, are asking $24.80 per square foot.
The gap between those two rents, $7.56, is up for a $3.90 gap between the two rents in 2012. “We are at a historic high in the spread between our A and B inventory,” Cuddy noted.
Let’s Make a Deal
While it may not have been a good first half of the year for leasing new space, the last six months did see a fair share of deal making.
Sales volume for the county’s office space reached $218 million for the first half of 2018, according to NKF. While that’s not too far an increase from the $216 million in sales by this point last year, it’s a significant jump from the county’s historical averages. The county’s five-year average sales volume by end of second quarter is $151 million, according to NKF.
The largest deal came from Martin Ginsburg. His Ginsburg Development Cos. teamed up with Robert Martin Co. on an $83 million deal to acquire the Westchester Financial Center, two office buildings comprising about 570,000 square feet on Main Street and Martine Avenue. The early plans call for converting part of the space to apartments and retail to create a “City Square” near the White Plains train station.
Other large deals include RPW Group’s purchase of 925 and 1025 Westchester Ave. in White Plains for $14.75 million and GHP Office Realty’s $12 million purchase of SL Green’s former office properties at 115-117 Stevens Ave. in Valhalla.
The quarter’s largest lease deals were relatively modest. Standard Life Insurance’s 21,793-square-foot lease at 333 Westchester Ave. in White Plains marked the county’s largest second quarter deal, according to CBRE. Stark Business Solutions signed on for 20,028 square feet at 445 Hamilton Ave. and French bank Societe Generale renewed its 17,728-square-foot lease at 44 S. Broadway to round out CBRE’s top three recorded deals.
Large blocks of quality space are hard to come by in the county. CBRE noted that only six blocks of space 100,000 square feet or more were available in the county by the end of the second quarter. Half of those blocks are in northern Westchester, and one of them is being considered for repurposing.
Cushman & Wakefield noted in its report that the White Plains central business district reached its lowest vacancy rate – 18 percent – in almost eight years.
CBRE’s report said that the lack of leasing belies strong tenant interest on the ground.