The Westchester County commercial real estate marketplace continues its progression toward modernization and becoming stronger from an economic and occupancy perspective.
Since the Great Recession of 2009, Westchester County has historically struggled with old and obsolete inventory and a reduction in tenant demand. The reduction in tenant demand hurt landlords’ ability to collect rents that would allow them to renovate or even just maintain their commercial office product to remain competitive. Predictably, the best, well-capitalized landlords and their office building product gained a disproportionate share of tenant occupancy and the less-than-best office buildings struggled.
Over the past several years, the Westchester marketplace has seen the emergence of the following trends:
• Increased office tenant interest in CBD of White Plains office market: Over the past three years the office vacancy rate in the commercial business district (CBD) office market has gone from 22 percent to 15 percent. Additionally, office rents in the CBD have risen by 20 percent over that period of time. Peak rents in the CBD appear to be reaching $40 per square foot, the highest in more than a decade. This increased vitality in the CBD has developers focused there. One example is the total renovation and activation of 11 Martine Ave. and 50 Main St. This is a project being redeveloped by Ginsburg Development and will be known as City Square.
• Office tenants’ demands: The first priority of office tenants is to attract and retain their human capital, their employees. The utilization of real estate, both in terms of location and functionality, as a tool to attract the new millennial employees has made this mandate more important than ever.
The second priority is increasingly dense office space utilization. The common “rule of thumb” used to be four employees per 1,000 square feet. Tenants are now putting up to seven employees per 1,000 square feet. Unassigned workspaces are also an emerging trend. Tenants are now asking their employees to pick a desk when they come in each day instead of having an assigned desk or office.
Increases in construction of high-density residential apartment buildings: This is a trend in several hubs within Westchester County. There is strong residential demand and construction in two submarkets:
• New Rochelle. The city features: 360 Huguenot St., a 28-story, mixed-use tower at the former Loews Theater, which will consist of 280 apartments and a 10,000-square-foot black box performance center; Church and Division streets, consisting of two 28-story towers containing a total of 650 to 700 apartments and 40,000 square feet of retail and parking; and “The Rockwell,” a five-story, 151,000-square-foot building with 114 apartments, 21,000 square feet of retail space and indoor parking.
• White Plains. 60 S. Broadway, a two-building, 707-unit, mixed-use development totaling 858,000 square feet. The 24-story residential towers will have a 93,840-square-foot commercial base featuring retail and restaurant space.
Continued softness in the suburban office park sectors of the county: We see continued softness for those buildings and office parks not within the Westchester CBDs as the value proposition of each building becomes less demonstrable. The vacancy rate outside of the White Plains CBD is hovering in the 27 percent range with no real momentum to bring that down. This softness allows for the redevelopment of these less-healthy office buildings into other categories of use, specifically residential, entertainment/lifestyle, medical (and biomedical), educational and retail. Examples of this are Simone’s proposed redevelopment of 104 Corporate Park Drive to a four-story pediatric ambulatory care facility for Montefiore Medical Center and the lifestyle fitness/Wegmans/Toll Brothers redevelopment of the Corporate Park Drive area.
The current trend in the Westchester market has seen improvement in the CBD office sector, a weeding out of the less competitive buildings and growth in other commercial markets such as apartment buildings, medical and other uses. As the White Plains center creates a critical mass of housing and entertainment venues combined with its train station improvement project, it will continue to capture more than its fair share of office users and with its limited supply of space, rents will continue to climb.
Jim Fagan is the managing principal in Stamford, Connecticut, and Westchester County, New York, of Cushman & Wakefield, a commercial real estate services company. He can be reached at Jim.Fagan@cushwake.com.