Lower asking rents, lack of leasing demand and an excess supply of office space bloated by downsizings and relocations by some of Westchester”™s corporate tenants contribute to what one veteran real estate broker called a “dysfunctional” commercial office market here.
First-quarter market reports from the county”™s three leading brokerage companies ”“ CB Richard Ellis, Cushman & Wakefield and Newmark Knight Frank ”“ show little or no sign of a market recovery.
Only the White Plains central business district ”“ where the Westchester One building at 44 S. Broadway since 2009 has seen a resurgence of leasing driven in part by companies relocating within the county ”“ showed improved leasing activity in the first quarter.
CB Richard Ellis said first-quarter leasing activity for both class A and class B office space in the county totaled 300,548 square feet, a 64 percent increase from the dismal first quarter of 2009.
This year”™s early leasing, though, was 61 percent below fourth-quarter velocity in 2009.
CB Richard Ellis analysts noted 67 lease deals were made in the first quarter, the same number as in the last three months of 2009, when 777,823 square feet of space was leased.
Brokers have said deals for smaller office space have become the trend in the county in the fallout from the recession as laid-off corporate employees launch startups.
Cushman and Wakefield reported a negative net absorption of 535,757 square feet of available office space in the first quarter. CB Richard Ellis put the county”™s first-quarter negative net absorption at 397,955 square feet. Newmark Knight Frank reported a negative net absorption of 491,981 square feet since the start of 2009, including 108,658 square feet added to the office market in the first quarter this year.
The county”™s oversupply of available office space grew in the first quarter. In White Plains, Starwood Hotels and Resorts Worldwide Inc. left 41,388 square feet at 1133 Westchester Ave. That was a prelude to Starwood”™s planned relocation of corporate headquarters and 800 employees from 1111 Westchester Ave., where it subleases 205,000 square feet of space, to the new Harbor Point development in Stamford, Conn., by January 2012.
In Armonk, MBIA Inc. in March put one of its two headquarters buildings, 113 King St., on the market for lease. Cushman & Wakefield is the exclusive leasing agent for the 80,306-square-foot, class-A office building on the 38-acre MBIA campus.
MBIA spokesman Kevin Brown said the decision to lease the three-story building was part of the financial services company”™s five-year plan to restructure as a traditional holding company for its separately operating business subsidiaries and thus reduce exposure in another financial crisis. Brown said MBIA”™s fixed-asset management subsidiary, Cutwater Asset Management, continues to occupy one floor of the building now on the market.
Brown said MBIA currently has 344 employees at its Armonk headquarters. The office campus has a capacity for 725 employees, he said.
CB Richard Ellis said the county”™s office space availability rate reached 18.3 percent in the first quarter, up 1 percent from the same period a year ago. Newmark Knight Frank reported a first-quarter availability rate of 22.1 percent, a new five-year high in Westchester and a 1.2 percent increase from the first quarter of 2009.
First-quarter asking rents in the county declined from 2009 levels. CB Richard Ellis reported an overall average asking rent of $26.79 per square foot this year, down from $27.88 per square foot in 2009. Newmark Knight Frank said the average asking rent fell to $26.88 in the first quarter, a drop of $2.34 per square foot from a year ago.
CB Richard Ellis brokers said landlords in the White Plains central business district and Westchester”™s eastern submarket, where a majority of the county”™s available space is concentrated, continue to offer discounts to bring in tenants, which kept asking rents down.
CB Richard Ellis said Westchester office landlords in first-quarter deals typically offered 4.9 months of rent abatement, compared with four months in the first quarter of 2009 and three months of rent breaks in the first quarter of 2008. The average first-quarter tenant improvement allowance was $33.69 per square foot, compared to $33.13 a year ago and $30.84 per square foot in early 2008.
The Westchester One in downtown White Plains continued to be one bright spot in the county”™s office leasing market. Brokers for Cushman & Wakefield, leasing agent for the Beacon Capital Partners L.L.C. affiliate that owns the 21-story tower, said Avon Products Inc. signed the building”™s first lease in 2010 for 22,000 square feet of second-floor space.
In the last six months, the Cushman & Wakefield team completed more than 300,000 square feet of deals in the 852,000-square-foot office building, accounting in 2009 for more than 70 percent of all class-A leasing activity in the city”™s downtown district.
Some of the largest deals at 44 S. Broadway, though, will leave a glut of available space in other submarkets in the county this year. Reader’s Digest Association Inc., which signed a 142,730-square-foot lease there, will vacate about 287,000 square feet at Chappaqua Crossing in the town of New Castle when it relocates it corporate headquarters to midtown Manhattan and moves about 525 employees and contractors to White Plains. Malcolm Pirnie Inc. will vacate 104 Corporate Park Drive in Harrison, a 118,000-square-foot building now marketed for sale or lease, when it relocates its headquarters and about 325 employees to an 86,894-square-foot space at Westchester One.
