BY HOWARD GREENBERG
In speaking to office building owners and my fellow real estate brokers, the words I hear to describe the leasing velocity in the first half of 2014 include moderate, slow, anemic and spotty. While there was an uptick in market activity at the very beginning of the year, it quickly dissipated.
As usual, the great majority of the space requirements are intracounty, with a few new inbound tenants. I don”™t expect much different for the rest of the year.
West side is hot
Relatively speaking, the west side of the county is the hot submarket. The Route 119 corridor in Tarrytown is seeing a number of tenants in the market for 15,000 to 20,000 square feet and some requirements that are new to the market.
But it is the nonleasing transactions that happened in the first half of this year that will significantly affect the Westchester market in the future.
In February, Mack-Cali sold off five buildings, totaling approximately 600,000 square feet on the west side of the county to Pennsylvania-based Keystone Property Trust. This will be a game changer in the Route 119 submarket, where Mack-Cali has been a major office-building owner for decades.
However, Keystone has hired the Mack-Cali leasing team to serve as leasing agent for these buildings, so there will be some familiar faces on the leasing side, but they will be answering to a new owner.
Stay tuned for the results, as this is Keystone”™s first purchase in our market. It is yet to be seen what capital investments they will make in the properties and how economically competitive they will be in leasing them up.
In and out
There have been some reverberations from recent losses of large tenants. The mortgage on Heritage Realty Services”™ 3 Westchester Park Drive (formerly known as 3 Gannett Drive) is in special servicing due to the loss of its anchor tenant, Wilson Elser Moskowitz Edelman & Dicker L.L.P.
The county”™s largest law firm vacated more than 130,000 square feet in this 160,000-square-foot building and relocated to RPW”™s 1133 Westchester Ave. one year ago.
The building at 1311 Mamaroneck Ave. has been purchased from its lender by its former owner Onyx Group due to financial issues with the previous owner. And some other buildings in the county reportedly are in financial difficulty with their lenders. Distress situations such as these are inevitable in a market where most of the leasing activity involves existing tenants moving from one building to another. There are only so many tenants in the county, and the buildings that lose their existing tenants will struggle to re-lease the vacated space, and spend a lot of money and downtime to do so.
Some big investments
In the largest lease of the first half, MBIA leased 85,000 square feet at Centre at Purchase, and is putting its more than 250,000-square-foot nearby office campus up for sale. It will be interesting to see who steps up to purchase it, as logic would dictate that it would be a corporate owner/user rather than an investor. This lease brings the Centre at Purchase to 90 percent occupancy. Its owner has spent significant dollars upgrading an already class A facility after its loss of Diversified Investors Services in 2011 and has deservedly attracted new tenants to backfill that space and more.
In a recent announcement, Mack-Cali said that it will make significant capital investments in a number of its remaining properties in the White Plains central business district and other submarkets. Normandy Partners is also spending money to upgrade its buildings, as is Faros Properties. These investments are crucial for owners to make in our commoditized market, in order to distinguish their buildings from their competition.
The many new hospital alliances should continue to push medical offices out into the communities. There are already requirements in the market and this is anticipated to continue as virtually all local hospitals ally themselves with major New York area institutions. These will likely impact both the office and retail space markets.
Creating a new mix
Residential projects continue to move slowly forward, repurposing land in our corporate parks.
Reportedly, Avalon is out and Toll Brothers is in on the 103/105 Corporate Park Drive site, and there is a residential developer in place for a part of the 1133 Westchester Ave. site. When these buildings actually get constructed, they will be the first test of how marketable multifamily residential in a business park setting will be. If the proper amenities and services are included, they could attract some young professionals now living in New York City and the White Plains CBD. These would be the first live/work/play environments in Westchester and could be a big boost to our county if they are well received.
In short, leasing velocity is slow, absorption is down and the traditionally slower summer season is now here. Some real estate professionals have confidence that things will pick up a bit in the second half of the year. But there is no clear trend (other than health care) indicating any significant resurgence of demand. We are again in a period where there are few large blocks of space available, which can hinder any potential large relocations into Westchester. That is the long way of saying that very little has changed in the office leasing market in 2014.
Howard E. Greenberg is the president of Howard Properties Ltd. in White Plains. He can be reached at howard@howprop.com or 914-997-0300.
