Office availability in Westchester, which includes space offered for sublet has decreased a bit in the first quarter to 26.3%. Vacancies have decreased to 23.1%, but these numbers are skewed by some factors that I will address later. The Q1 vacancy rate decreased from last year primarily due to removal from the inventory of the former MBIA headquarters at 113 King St in Armonk and the property at 2700 Westchester Ave. in Purchase, both of which are slated for residential redevelopment.
A couple of large blocks of space have come on the market, including 89,000 square feet offered for sublease by New York Life at 44 South Broadway in White Plains. This is about one half of the space that the insurance company leased in 2017 when they relocated a portion of their New York City space to White Plains, and adds to the number of large blocks of space available in the White Plains Central Business District (CBD).
Net absorption was negative 93,000 square feet, in part due to the New York Life sublease block coming to market. The countywide office inventory is now listed at 25.5 million square feet, a significant shrinkage from last year when it was just under 27 million square feet and a bigger drop from the +/- 32 million square feet of inventory that existed before there were some major repurposings of obsolete buildings.
Leasing activity was 300,000 square feet, which was a decrease of 25% vs. last year. Deals of between 5,000 and 10,000 square feet drove demand and deals of this size range were up 40% from the prior year. Sixty-six of the 71 deals in Q1 were under 10,000 square feet, according to Newmark’s report for the quarter.
Medical, education and government are driving the activity, and it appears that leasing volume for traditional office space will trend lower than average this year. Small size deals are driving the market with mid-size deals fewer in number. Deals of over 50,000 square feet are nearly non-existent, which is consistent with the trends since the pandemic. As usual, lease expirations are driving the market, rather than new leases involving companies moving into Westchester.
Rental rates have remained generally stable. Even though logic would dictate that rates would decline in a soft market, landlord costs (including operating costs, real estate taxes, mortgage interest and tenant space construction) have all risen significantly in recent years, so there is literally no room for rent reductions in Westchester. The good news is that tenants are committing to full-term leases of generally seven years or more, as these longer terms are required to amortize the higher costs of tenant interior construction.
The accounting firm of Citrin Cooperman signed a 22,0000-square-foot lease to relocate to RPW’s 1133 Westchester Ave. This is another example of a tenant relocating from a building that is delinquent in its mortgage to a financially strong one. This represents a shrinkage of about one-third from its former size. I am told that the space will be run on a “hoteling” model, where employees who come into the office will reserve an office or workstation on an app and will occupy it for that day, rather than having reserved personal offices that remain empty much of the time.
Simone Development purchased 1 Executive Blvd. in Yonkers from Robert Martin, which it is repositioning for medical use and has already landed a 9,000 square foot opthamology group as its first new tenant. This is a simple repurposing of an office building that will create significant value for its new owner and will continue to shrink the office inventory.
So, nothing major has changed in this year’s first quarter. We continue to see new leases and renewals that are typically downsized from their previous spaces by +/- 15% to 20%, as well as some upgrading to higher quality buildings by tenants who are willing to pay a little more per square foot for their now-smaller premises.
Financially stable ownership and buildings with renovated common areas and full amenity packages are what attract tenants today in Westchester. We continue to see large holes in the market where owners are delinquent in their mortgages and do not have the capital to transact new leases and build out space. These spaces (now almost 1 million square feet) are technically available, but you cannot lease them. There will be more of these coming in the future, which will contribute to the “have” and “have not” nature of the market.
The “700 series” of buildings in the East-287 submarket are emptying out, as the current mortgage is in special servicing and there is no money to maintain the buildings and/or to transact new leases. Given today’s interest rates and the high cost and long process of securing municipal approvals for new uses, this will leave a huge hole in the market that will take more than a decade to repurpose for one or more different uses.
