There was strength in Westchester’s multifamily and industrial real estate sectors in the fourth quarter of 2019 while some leasing weakness was evident in the retail and office sectors, according to Houlihan Lawrence’s report on the Westchester commercial real estate market.
It found that the upward trajectory in the industrial and flex space segments, which it traced back to 2014, has continued with industrial space vacancies declining 0.3%. The report said industrial-flex lease pricing has been stable over the last three quarters and it’s not aware of any new supply coming to market in the area south of I-287.
“A firm market with upward pressure on occupancy and pricing is likely to continue for the foreseeable future,” Houlihan Lawrence said.
The report said overall retail rents hovered around $27.50 per square foot in the fourth quarter of 2019, approximately $1 lower than they had been in the first quarter of 2018. The report said new leasing activity in Westchester was weak but more retailers remained in place, leading to market stability. Owners of high-visibility spaces with accessible parking have been able to stay firm on price or even institute slight upticks. It credited Westchester’s high-income demographics with keeping retail real estate desirable, while also noting that owners of large malls and shopping centers continue to face store closings of well-known brands.
“These brands have become increasingly vulnerable to e-commerce and digital sales competition. Gap, JCPenney and Foot Locker have recently announced additional closures,” the report said.
It said “anchor” and large spaces have to be reformatted to house smaller, niche service-related businesses that are now renting.
Houlihan Lawrence observed a 3% drop in the average pricing of office space in Westchester for the fourth quarter of last year from what it had been in the third quarter. The fourth-quarter average was just under $27.75 per square foot. The report said while leasing for Class A office space in large, urban centers has been good, “smaller office spaces, lacking convenience and amenities are struggling to attract new businesses.”
The report characterized the suburban office market sector as “facing headwinds.”
The report said commercial real estate buyers are taking a wait-and-see approach. It found that commercial real estate volume in Westchester has weakened, which it related to international economic worries affecting buyer confidence. It said higher replacement costs due to higher construction costs have figured into the pricing of those deals that have taken place.
The report characterized the multifamily apartment building sector as having “unabated strength.” Average rents increased 2.5% in the fourth quarter of 2019 compared with the fourth quarter of 2018. Apartment projects have been attractive for investment capital since new projects have been able to pass along most increases in construction costs or modify the projects to help offset higher costs.
In its analysis of the domestic and global financial outlook, the Houlihan Lawrence report saw great strength in the U.S. employment situation. “Consistent with national trends, Westchester’s employment trends have also improved,” the report said.
Houlihan Lawrence said the leasing strength for industrial warehouses being seen nationwide will also continue to be seen in Westchester. It pointed to the needs of e-commerce retailers for warehouse space and suggested that Westchester will benefit as the demand for so-called “last-mile-delivery” bases increases. It quoted statistics saying e-commerce sales are growing but only currently constitute 12% of total retail sales and e-commerce retailers need three times the warehousing space as do brick-and-mortar retailers.
The report expressed optimism for the Westchester real estate market in 2020 due to steady U.S. economic growth, Wall Street gains and consumer confidence.