Westchester County’s office market slowed a bit from early 2017 highs in its final quarter, according to market analysts, but maintained the year’s solid numbers overall.
Colliers International Group Inc. reported that office leasing slowed in the fourth quarter, with 339,851 square feet of leasing activity. That’s down 19.5 percent from 2016, according to Colliers.
“Westchester County’s office market started the year with a bang, with several large occupiers signing new leases,” Sean Cullen, director of research for Colliers’ Stamford office, reported. But the “early momentum slowed considerably” in the year’s second half, he added. Colliers measured the fourth-quarter office availability rate at 22.2 percent, up a slight 0.2 percent from the previous quarter.
Newmark Knight Frank reported that about 23 percent of the county’s 27.7 million square feet of office space was available at the end of the fourth quarter. That was unchanged from the county’s third-quarter availability rate, but an improvement from a 25.6 percent peak in availability in the third quarter of 2016.
NKF reported just over 10,000 square feet in positive net absorption for the fourth quarter in Westchester, making 2017 the county’s first full year of occupancy gains since 2013.
A breakdown of the county’s submarkets shows that a wide gap in the health of the county’s northern and southern submarkets continued through the fourth quarter.
The White Plains Central Business District and the southern Westchester markets tied for the lowest availability rate, as measured by NKF, at 17.2 percent. The White Plains CBD recorded an average asking rent just above $34, the highest in the county. Colliers did note that availability rose slightly in downtown White Plains, but is still significantly lower than 2016’s fourth quarter vacancy rate of 25.6 percent.
Meanwhile, the county’s northern market continues to struggle under the weight of abandoned corporate headquarters. About 37 percent of its 7.3 million square feet of office space is unfilled, according to Newmark Knight Frank.
Glenn Walsh, executive managing director in the Rye Brook office of NKF, noted that the county’s 23 percent availability rate could look a lot different without the struggles up north. The northern market has had to absorb more than 1.6 million square feet of office space vacated by PepsiCo and IBM in Somers.
“If you take the northern submarket out, which is just getting crushed because of all the heavy vacancy, we have a 15 percent (availability rate),” Walsh told the Business Journal. “That’s a very healthy market.”
Colliers measured the availability rate in the northern market at 37.7 percent, the highest it has recorded there. The former IBM campus in Somers accounts for 41 percent of that total available space, Colliers said. Without that building, the rate would drop to 22 percent.
Still, Colliers found the average asking rent in the northern submarket has remained stable, falling only a few cents from last year’s quarterly numbers to $24.91 per square foot.
The county’s southern submarket — which includes Mount Vernon, New Rochelle, Yonkers and six other towns and villages — was the most competitive, according to Colliers. Fourth-quarter asking rents there climbed to $25.24 per square foot, up 8 percent from the fourth quarter of 2016. Overall availability in the submarket dropped 2.4 percent to 12 percent, which Colliers said is the lowest in the county. The firm’s Colliers analysts attributed the tightening conditions to limited Class A office properties and companies seeking low-cost options near urban centers.
The largest fourth-quarter deal was ENT & Allergy Associates’ lease of 38,1128 square feet of headquarters space at 660 White Plains Road in Tarrytown, according to Colliers. Other major deals included a 31,520-square-foot lease renewal by Commerzbank Disaster Recovery at 1 International Drive in Rye Brook and Teladoc Inc.’s renewal and expansion to 21,118 square feet at 2 Manhattanville Road in Purchase.
Overall leasing activity in the county in 2017 totaled 2.1 million square feet in 270 deals, according to Newmark Knight Frank. While the county in 2016 saw more leasing deals, with 331, major deals in 2017 kept the total square footage leased about equal for the two years, according to NKF.
Health care companies and providers drove an increasing amount of that leasing. The sector captured 24 percent of 2017’s demand, according to NKF, almost double 2016 numbers. The finance, insurance and real estate sectors drove the most demand, at 25 percent of the market. Though that percentage was down from 32 percent in 2016, Newmark Knight Frank attributed the drop to a decrease in demand from the insurance sector.
The county’s largest office deals of 2017 came from a range of industries, according to NKF. The largest was Montefiore Medical Center’s renewal of about 296,000 square feet of office space at the South Westchester Executive Park in Yonkers. That was followed by Atlas Air’s renewal of 120,000 square feet at 2000 Westchester Ave. in Purchase.
The county’s largest new lease last year brought Sumitomo Mitsui Banking Corp. to 1 N. Lexington Ave. in downtown White Plains, where it occupies about 101,000 square feet of space.
Cushman and Wakefield’s list of the year’s three largest deals led with Sumitomo, followed by New York Life Insurance, which leased 89,426 square feet at 44 S. Broadway in the White Plains Central Business District. Ascensia Diabetes Care leased 65,000 square feet of space at 100 Summit Lake Drive in Valhalla.
Westchester ended 2017 with a 19.6 percent office vacancy rate, down from 21.2 percent a year earlier, Cushman and Wakefield reported. Downtown White Plains had a 16.7 percent vacancy rate at year’s end, according to Cushman and Wakefield, down from 21.7 percent at the end of 2016.
The White Plains Central Business District also saw the largest increase in taking rents, up by 15 percent year over year, according to Cushman and Wakefield. Overall taking rents in the county increased slightly from 2016 averages, the company reported.
Kevin J. McCarthy, managing director of brokerage services in Cushman and Wakefield’s Stamford office, described 2017 as the best year for downtown White Plains in the last decade. He wrote in a year-end market summary that the city’s business district will likely keep up that strong performance in 2018, with deals yet to be announced and additional office inventory coming off the market through residential conversions.
In office building sales, one of the county’s largest in 2017 brought a new owner to the county’s oldest high-rise property, the Westchester One at 44 S. Broadway. Beacon Capital Partners sold the downtown property at 44 S. Broadway in White Plains for $138 million to an undisclosed buyer.