Westchester office Q3 analysis

There were many more renewals than new leases in Westchester during this year’s third quarter. The largest renewal was Fuji Film at 500 Summit Lake Drive in Valhalla, where the company renewed for 57,514 square feet, but is shrinking by about 65,000 square feet. Mastercard has indicated that it will not renew its lease for 121,000 square feet at 100 Manhattanville Road in Purchase.

Small deals (primarily under 5,000 square feet) have dominated the market. However, a number of 20-50,000 square foot intra-county deals are expected to close in Q4, which should help the year-end results. At 1.2 million square feet of leasing activity during the year to date, the county is about 12% lower than its 10-year historical average, according to data reported by Newmark.

The county’s vacancy rate continues to be high at almost 24% per Newmark’s Q3 report. However, it is definitely skewed (by about five percentage points) by the long-time availability of the 1.2 million square foot former IBM Somers campus. After having been vacant for about a decade, the reality of this space being leased for office use is very remote, and I do not believe it should be carried as part of the vacancy statistics any longer.

The number of multi-tenant office buildings having financial issues appears to be increasing, among them five buildings in The Exchange in the Route 287 East submarket, which I learned was going into Special Servicing with the lender.

We are starting to see a new category of “shadow vacancy” space that is listed as available in the county statistics but happens to be in financially distressed buildings where it is not possible to transact new leases. However, the rates landlords are taking are trending up a bit, due to stubbornly high operating and construction costs.

Owners of higher-quality buildings who are financially solvent are receiving the benefits of a flight to quality (and flight to landlord solvency) as tenants who relocate from distressed buildings typically are leasing smaller spaces at better buildings. Amenities including cafeterias, fitness centers, and day care centers are helping to attract employees back to their offices and definitely factor into real estate decisions.

Repurposings of office buildings continues, and there will be more of them in the future. Mavis Discount Tire purchased the empty 135,000 square foot building at 100 Hillside Ave in Greenburgh from its lender to use as its headquarters. Also, the 120,000-square-foot building owned by United States Tennis Association has been fully vacated and sold to the developer of the adjacent former Renaissance Hotel site, so it will likely be demolished and come off the inventory.

This quarter’s results show that Westchester’s multi-tenant office market continues to shrink, operating costs and construction costs continue to rise, and hybrid work continues to negatively impact demand for office space. There is lots of office space sitting empty and tenants need to understand the current landscape in order to make good real estate decisions.

Howard E. Greenberg is president of Howard Properties, Ltd. in Valhalla. He can be reached at (914) 997-0300 or at howard@howprop.com