Manhattan”™s tight commercial real estate market grew even tighter by this year”™s midpoint. Already-low vacancy rates continued to drop and already-high office rents continued to rise.
Those might seem the opportune makings for a corporate migration from Manhattan to the lower-priced and more-available Westchester office market, as real estate brokers and developers here have publicly forecast with near unanimity. Yet that is not happening, according to a Manhattan real estate market expert and a longtime Westchester commercial broker.
Robert L. Sammons, managing research director at Colliers ABR Inc. who prepared the Manhattan company”™s second-quarter office market report, said the vacancy rate for class-A buildings there fell to 5.6 percent in the second quarter from 6.1 percent in the first quarter. The overall vacancy rate dropped to 6.9 percent from 7.2 percent over the same period.
Asking rents for class-A space in Manhattan rose 10.9 percent in the second quarter, closing at $80.47 per square foot. In the prime midtown Manhattan market, the average asking rent climbed to $92.31 per square foot.
That compares to an average asking rent for class-A space in Westchester of $29.43 per   square foot in the second quarter, a nearly 5 percent increase from the first-quarter average, Colliers reported. In White Plains, the class-A average asking rent rose to $31.09 per square foot from $28.73 in the first quarter, despite a “shockingly high” second-quarter vacancy rate of 31.3 percent, according to the Colliers ABR report.
In Westchester County overall, Sammons reported a “very quiet” second-quarter office market, with the class-A vacancy rate jumping to 22.2 percent from 20.8 percent in the first quarter.
Realtors at CB Richard Ellis presented a less gloomy outlook in their recent second-quarter report. Westchester”™s availability rate hovered at 15 percent, the company reported, while the availability rate in the White Plains central business district remained at 14 percent.
CB Richard Ellis said a main reason for the Westchester office market”™s stable supply and demand in the first half of the year was “the fact that companies headquartered in New York City continued to look for less-expensive suburban locations to house back-office functions and backup facilities and Westchester was extremely high on the list of alternatives.”
Among the more significant leasing transactions here at midyear, Disney Publishing Worldwide will move its Manhattan headquarters later this year to a 61,000-square-foot space at 44 South Broadway in White Plains. Yet other Manhattan companies apparently are not lined up to follow.
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Surprise
“It”™s very interesting,” said Sammons in Manhattan. “In the late ”™90s, when the Manhattan market was very tight” during the dot-com boom, “firms looked to move at least part of their operations to Westchester and other suburban areas. This go-around, it really hasn”™t taken off in that direction.
“Which is kind of surprising even to me, quite frankly,” Sammons said. “I would think that White Plains would be primed for some sort of office development with the markets being as tight as they are in Manhattan.”
“It hasn”™t happened dramatically yet, but I have a feeling that at any time we”™re going to hear about that happening.”
In Rye Brook, Carl Austin, president of Austin Corporate Properties Inc., has heard real estate colleagues predict that corporate migration northward for 41 years. The spread in rents between the Manhattan and Westchester office markets “would induce if not an avalanche, a parade of companies” relocating here, in their collective view.
“It doesn”™t happen,” he said. “There is always a group of companies annually that will move here” from Manhattan, though not in large numbers. “There have been these opportunistic moves, some of them very notable and some of them below the radar screen.
“This Westchester economy has continually been based on companies relocating as well as companies expanding within the county. I think that will continue to be true. But I don”™t think it is generated by the rents alone, by the rent spread.”
Smaller companies may be squeezed out of Manhattan by high rents, Austin said. Companies whose executives live in Westchester might “take a hard look” at relocating here and paying cheaper rents.
Yet, “Major companies that need to be in New York will stay in New York,” Austin said. “As long as their business is not going to hell, they”™ll pay the rents, because their business is profitable because they”™re in New York.”
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