Brokers in the Westchester office market see signs that the market has bottomed out and have hope for a slow recovery. Asking rents dropped slightly in the third quarter and minimal leasing activity left the county with a glut of empty office space.
Market analysts at CB Richard Ellis said the nearly 6.1 million square feet of office space available as of September make a lengthy recovery “inevitable” for the Westchester market.
At the close of the third quarter, CBRE”™s Stamford, Conn., office reported 19.44 percent of overall office space in the county was available for leasing. That was a slight drop of 0.5 percent from the second quarter, but an increase of about 2.1 percent from the third quarter of 2009 and a 3.2 percent rise from the period in 2008. In the peak market of 2007, the county”™s third-quarter availability rate was 15.71 percent, according to CB Richard Ellis.
Market researchers at Newmark Knight Frank reported a higher third-quarter availability rate, 23.9 percent, in Westchester, down 0.5 percent from the second quarter but a 1.1-percent increase from a year ago. In the White Plains central business district, which accounted for one-third of the county”™s third-quarter leasing volume, according to Newmark Knight Frank, the availability rate dropped to 19.5 percent, down from 28 percent a year ago.
Lease deals smaller than last year
CB Richard Ellis reported 385,051 square feet of class-A and Class-B space was leased countywide in 88 third-quarter deals. Total volume on deals in the quarter was down nearly 3 percent from a year ago, when 14 fewer leases were signed, according to CBRE statistics.
Cushman & Wakefield Inc. said new leasing for class-A and class-B space in the third quarter totaled 224,829 square feet, a 19 percent increase from the third quarter last year and up nearly 16 percent from the second quarter this year.
Despite the third-quarter rise, Cushman & Wakefield analysts said leasing activity through the first nine months of 2010, about 720,000 square feet, put the county office market “on track to match last year”™s anemic number” of about 1 million square feet. That was down from the 2008 leasing of 1.3 million square feet, which was a 35 percent drop from the 2 million square feet leased in Westchester in 2007.
CB Richard Ellis reported higher leasing volume to date this year, about 1,034,900 square feet. The brokerage said that is a 15 percent increase from leasing activity through the first three quarters of 2009.
Sublet availability rate is dropping
Brokers at RHYS Commercial Real Estate said nearly one-third of sublease space available in the county a year ago has been rented to date this year. RHYS said the sublet availability rate has dropped from a high of 2.7 percent a year ago to just under 2 percent in September.
Cushman & Wakefield said the overall vacancy rate for class-A space in the county was 20.3 percent in the third quarter, down 1.1 percent from the midyear rate and slightly less than third-quarter vacancies in 2009. CB Richard Ellis reported a 17 percent vacancy rate in the third quarter at class-A and class-B buildings countywide, up slightly from the third quarter of 2009.
Cushman & Wakefield researchers said about 400,000 square feet of previously occupied office space have gone vacant this year in Westchester, including 130,000 square feet vacated in the third quarter. The vacancies continued last year”™s recession-driven trend, when 485,000 square feet of space went dark in Westchester office buildings.
Vacancy rates may still climb in 2011
Cushman and Wakefield analysts predicted vacancy rates in both Westchester and Fairfield County, Conn., will increase slightly through early 2011, as tenant companies “keep a watchful eye on their expenses and capital outlays.” James Fagan, senior managing director of the Cushman & Wakefield office in Stamford, Conn., said it will be another 12 months before landlords start to see “positive momentum” as jobs added by employers create demand for office space.
Brokers said building owners”™ asking rents in Westchester were down slightly or unchanged in the third quarter. CB Richard Ellis said the average asking rent was $26.40 per square foot, unchanged from the county”™s midsummer average and down 49 cents from a year ago. The average asking rent has dropped about 7 percent from two years ago and about 8 percent from the third quarter of 2007, according to CBRE statistics.
Cushman & Wakefield said third-quarter asking rents for direct-lease space in class-A buildings averaged $30.88 per square foot, down about 2 percent from midyear and a year ago. The White Plains central business district commanded the highest asking rents, averaging $32.98 per square foot in the third quarter.
Outside central White Plains, landlords lowering rent
Fagan said landlords outside central White Plains generally have lowered their taking rents by as much as 30 percent to compete for tenants swayed predominantly by price when making lease decisions.
Despite the county”™s office-space surplus and still-sluggish leasing, brokers in the Westchester market found positive signs at the start of the fourth quarter.
John D. Goodkind, managing principal at Newmark Knight Frank in Greenwich, Conn., said a number of firms are looking for large blocks of space in a market where asking rates are lower. He said he expects increased leasing activity “by year-end through the first half of next year.”?RHYS analysts said both the Westchester and Fairfield County, Conn., markets “have reached the bottom of the downturn.” Unlike the trend in 2009, available space now coming on the market is due to normal lease expirations “rather than a rash of excess spacing being added to the market fueled by mass layoffs at an alarming rate.”
Brokers agreed the market”™s recovery will be slow and uneven. “In three years, we are going to be coming out of a trough,” Fagan said last month at a Cushman & Wakefield press briefing. “It”™s going to be rocky between now and then.”
For players in the stagnant office market, “It”™s a testament to what”™s happened ”“ in 2010 we”™ve learned to walk with a limp,” said Fagan. “We”™re going to survive.”
