The commercial real estate advisory firm Newmark Knight Frank (NKF) said in its fourth-quarter report that the Westchester County office market finished 2019 on solid footing and it expects that, for the most part, the market will build on 2019’s gains in 2020.
As the year was ending, the overall availability rate for office space in Westchester finished at 20.1% , the lowest since 2014. The overall vacancy rate finished the year at 16.2%. The vacancy rate includes space that is currently unoccupied and the availability rate includes unoccupied space plus space which, while not yet vacant, is available for a leasing deal.
NKF said that the renewal leasing activity in 2019 came to approximately 1.8 million square feet, which was 4.2% above last year’s total. The fourth quarter saw a 48% jump from leasing activity in the third quarter, with agreements for 510,000 square feet. Newmark Knight Frank counted 107 renewals signed in 2019, compared with 80 in 2018. Renewal volume was 860,000 square feet, up 35.2% over 2018.
The number of new leases along Interstate 287 declined 8.8% from 970,000 square feet in 2018. In 2019, the figure was 885,000 square feet. The number of new-lease deals came to 172, which was 41 fewer than in 2018.
The real estate firm said that the largest renewal was signed by Atlas Air for 120,000 square feet at 2000 Westchester Ave. in Purchase, followed by OrthoNet at 1311 Mamaroneck Ave. in White Plains, which renewed 63,575 square feet.
Newmark Knight Frank said that the East I-287 market had its lowest vacancy rate since 2007 at 9.1%. This put upward pressure on rental rates, with asking rents for Class A space averaging $28.64 per square foot, up 1.1% from both the third quarter of 2019 and 2018 rates. Asking rates for Class B space increased 2.2% year over year, reaching $24.36 per square foot. On average, space was being rented at $1 to $2 per square foot higher in 2019 than it previously had been.
The I-287 western sector had 79 deals in 2019, 14 more than in 2018. The report pointed to Montefiore’s 45,000-square-foot expansion at 555 Taxter Road in Elmsford and new leases in Tarrytown for Kari-Out to take 16,000 square feet at 520 White Plains Road and Allstate Insurance to take 15,000 square feet at 120 White Plains Road.
The report highlighted activity in the White Plains Central Business District, which it said “continued to enjoy positive momentum in 2019.” It reported an overall availability rate of 17.2% with a direct vacancy rate of 9.2%. It said the higher availability rate was due in part to space for subleasing that recently became available near the train station. Rents for Class A office space in the central business district increased by 2.4% from 2018 and were at $35.66 per square foot at the end of 2019.
In looking ahead to 2020, Newmark Knight Frank said landlords should expect to see the cost of tenant installation packages on the rise. It said renters are going to be demanding more in their buildout requirements and “a booming construction market continues to drive up the demand for labor and materials.”
The report took note of the effort underway for a private school operator, Evergreen Ridge, to move into the 1.2 million-square-foot former IBM site in Somers. It said that if the school obtains the necessary state and local approvals, removal of that large block of space would see the county’s overall availability rate drop to 15.7% with the vacancy rate hitting a historic low of 11.8%.
The NKF report noted that some landlords and brokers would consider 2019 to have been a banner year. “We can’t just write that and take that lightly,” Karolina Alexandre, research manager for NKF, told the Business Journal. “It really has to come from different angles; capital markets, leasing, office leasing. The market is very tight and probably tighter than it has been in decades.”
Alexandre said that office demand ties in with the overall national and Westchester economic picture. “The more office sectors grow in employment, the more we’re going to see demand for office space. We don’t have a crystal ball but things have been good in Westchester on the economic front so we are seeing growth in different industries, demand from a diverse mix of industries.” She pointed to legal services in the White Plains CBD, health care and biotechnology as examples of sectors that are adding to the demand for office space.
Glenn Walsh, executive managing director of NKF, told the Business Journal that the Westchester County office market is “probably healthier than it has been in decades. As we look into 2020, it will be interesting to see how things play out for tenants looking for quality Class-A office space, given that the options in that category are limited.”