Commercial Brokers Bullish on Market Prospects for 2016
John Jordan | February 2016
WHITE PLAINS—In what can only be described as “saving the best for last,” Hudson Valley commercial real estate brokers predicted the commercial markets will fare very well this year, fueled by increased tenant demand and surging health care and biotech sectors. The roundtable discussion presented by the Hudson Gateway Association of Realtors’ Commercial Investment Division was the last CID session held at the HGAR offices at 60 South Broadway.
Richard Haggerty, chief executive officer of the Hudson Gateway Association of Realtors, led the session by informing the gathering of more than 50 attendees that HGAR will be relocating its headquarters operations from the soon to be redeveloped Westchester Pavilion mall to more than 15,000 square feet of space on the top floor at the Source at White Plains (One Maple Ave.) that was formerly occupied by Fortunoff on or about April 1.
Haggerty said of the pending relocation, “We are very excited about it. We think it is going to be a great facility. One of the things we are most excited about is that instead of individual classrooms, we are going to have two classrooms with a sky-fold wall that will divide them.” He added that the partition will allow the reconfiguration of the two classrooms into one large meeting space if needed, which will lessen the need for HGAR to rent space for large gatherings at various meeting venues, such as the Crowne Plaza, for example.
The roundtable participants were: Paul Adler, regional manager, Rand Commercial; Glenn Walsh, executive managing director, Newmark Grubb Knight Frank; William Cuddy, executive vice president, CBRE and John Lavelle of Rand Commercial. The moderate was John Barrett, vice president of sales for Admiral Real Estate Services. The CID broker roundtable discussion is normally held in December, but this year with a host of events and the impending relocation, the session was pushed back.
Lavelle, who concentrates on the Orange, Sullivan and Ulster county markets, said that 2015 saw the growth of the non-traditional investor in the upper Hudson Valley marketplace.
He said that normally the market is filled with 1031 exchange deals of around $500,000. Last year and into 2016, there is a plethora of 1031 deals in the $10-million to $15-million range. He said the commercial market there is mirroring what is taking place on the national level, particularly in terms of continued downward pressure on cap rates.
CBRE’s Cuddy was very upbeat on the Westchester commercial office market for 2016 and said that this year will piggyback on the robust activity the market enjoyed in 2015. “It was a healthy, sustainable and relatively strong year in Westchester County in terms of its performance in the commercial sector…” He said that the medical, flex, industrial and research and development-oriented space were particularly strong. Lavelle also noted that Orange and Rockland counties have seen their share of medical/pharma related warehouse type transactions.
Walsh agreed with Cuddy’s assessment of 2015, but did identify some trouble spots, particularly in Northern Westchester. “I think this year (2016) starting out will be absolutely phenomenal for Westchester County, but the northern market is taking it on the chin with a lot of vacancy up there (including the vacant PepsiCo headquarters in Somers) and I am not sure if alternative uses aren’t going to the best alternatives for those buildings. But, I think overall I think we are looking at good signs moving forward.”
However, he said that the Westchester County market is seeing a significant amount of leasing interest with new tenants to the market, noting the Hospital for Special Surgery’s recent 50,000-square-foot lease signing at 1133 Westchester Ave. in White Plains. “There are three deals north of 20,000 square feet (with firms) that are not in Westchester County today that are looking for space in Westchester County. So we seeing the (increased activity—is it all from New York City, no, but it is from around the region. People are starting to take a second look at us.”
He continued, “Westchester as compared to Fairfield County, (CT) Long Island, New York City, New Jersey… we are at a damn good price for what you are getting and we’ve got the best infrastructure. People are slowly waking up to it. Is it happening in a big way, no, but it is starting to happen and it is nice to see.”
The commercial office and retail markets located close to New York City fared better in 2015 than those in the northern and western sections of the Hudson Valley, Adler told the CID gathering. He said that especially in the smaller space deals, inventory is becoming a major issue.
“Good inventory, quality inventory, the kind of inventory that folks are looking for is just not around,” Adler said. “And so we as a commercial group have to become creative—it is about adaptive reuse, it’s about creative reuse. I think that is where we are going to see the next phase of expansion.”
Both Adler and Cuddy agreed that the office market has turned into a seller’s or landlord’s market. “2015-2016 is a pivotal shift. It is now a landlord’s market,” Cuddy said. “There is no doubt that the leverage has shifted from the tenant to the landlord. Transaction structures are changing; credit issues are paramount.” He added that there has been compression in concessions with free rent being reduced and in some cases eliminated.
Cuddy said that CBRE expects that Class A office rents in Westchester County to increase at least 5% in 2016.
Adler said that the smaller-sized office market in the Hudson Valley region is soft with many former small office users no longer requiring bricks and mortar-styled office space. “Even (traditional) real estate offices are changing. They are now charging stations. The real estate offices used to be loaded up with desks. Today it is a whole different set-up,” he noted.
“The medical office space has been the savior (as compared to) any of the other office product in Rockland and Orange counties,” he said. Another key industry for the smaller niche office market sector is non-profits.
Lavelle said that Orange County, due to its prior successes in landing major development deals, is facing a shortage of shovel-ready sites that could impact its performance going forward.
Cuddy related that strength of the medical-office-lab markets has bolstered other sectors, including the industrial-flex space market, as well as the multi-family development sector. He noted that there are currently 1,500 rental housing units under construction and another 7,200 units in the pipeline in Westchester County.
Lavelle said a casualty of the consolidation in the medical/health care services sector where private practices are joining networks such as Crystal Run Healthcare will be that those practices are now vacating Class B, C and D space in the county. He said he expects a glut of that type of space to hit the market in the future.
HGAR’s CID will be on the road on St. Patrick’s Day (March 17) being hosted by Westchester developer Robert Weisz of the RPW Group at his firm’s 1133 Westchester Ave. office building in White Plains. Weisz will update CID members on plans he has for the property there as well as provide some of his insightful views on the region’s office market. The session begins promptly at 10 a.m. Prior registration required at hgar.com.
Group Photo: From left to right (standing) Clayton Livingston, John Lease III, HGAR President Marcene Hedayati, HGAR CEO Richard Haggerty, and CID President John Barrett. (Sitting) John Lavelle, Willlam Cuddy, Glenn Walsh, and Paul Adler.