HUDSON VALLEY REAL ESTATE REPORT: Strong Economy Boosting Outlook for Westchester Office Market
John Jordan | January 2016
WHITE PLAINS—The improving national and local economies are definitely benefitting the Westchester County office market and all signs are pointing to a year of positive absorption and lower vacancy rates.
That was the consensus of the participants of a panel comprised of commercial brokers and developers that offered their 2016 prognostications for the Westchester Count office market. The panel was featured at the Building Owners and Managers Association of Westchester County “State of the Market” meeting on Jan. 14th at the Crowne Plaza Hotel in White Plains.
The panel included John Barnes, senior vice president, managing director suburban division for Reckson, a division of SL Green; William Cuddy, executive vice president, CBRE Group; Thomas Sklow, vice president of development and leasing for Keystone Property Group and Robert Weisz, chairman, CEO and founder of the RPW Group. William Mooney III, director of the Office of Economic Development of Westchester County was the moderator of the panel presentation.
The panel was particularly bullish on the prospects for growth in the health care and biotech sectors in Westchester County. At the onset of the presentation, Weisz announced that the Hospital for Special Surgery had signed a 50,000-square-foot lease at his 1133 Westchester Ave. office building in White Plains off I-287.
“I think 2015 will be (viewed) as a turning point in the history of Westchester County,” Weisz said. He told the more than 100 attendees at the event that leasing activity in Westchester and his portfolio had picked up considerably over the past six months. He noted that RPW Group leased 10% of its portfolio or approximately 200,000. Weisz said the last time that happened was in 2007.
Weisz is bullish on the market, particularly because of the amount of new multifamily development in the pipeline that will provide housing for workers. He noted that the City of White Plains alone has approximately 3,000 new housing units either under construction or in the approval process.
He added that county government has “shown great common sense” keeping taxes down and also promoting a business friendly environment.
“We think 2016 will be a continuation of what we have seen in 2015 and we think that we are going to see single-digit vacancies in many submarkets within Westchester,” Weisz said.
Keystone Property Group’s Sklow agreed with Weisz and said his firm, which owns the Talleyrand Corporate Park (180,000 square feet) and Taxter Corporate Park (500,000 square feet) in Elmsford, is in the midst of an $8-million capital improvement program on its Westchester portfolio.
Reckson’s Barnes said the more positive outlook for the commercial office market is due in part to internal growth. “We are finally starting to see tenants growing where they are,” he said. “They are renegotiating their leases early and expanding, which is certainly a good first step.”
Barnes said that the construction of the new Tappan Zee Bridge and the expansion of Regneron Pharmaceuticals are all positive indicators for future economic expansion in Westchester. Noting that while the county is seeing considerable growth from the health care and biotech sectors, a significant portion of the county’s office product is not adaptable to those sectors, which could foster additional new biotech/laboratory or health care construction projects.
He added that if the availability of the PepsiCo space in Somers were not considered as part of the vacancy numbers, the overall vacancy rate in the county would be in the teens. CBRE in its fourth quarter 2015 office market report put the county’s overall vacancy rate at 20%.
Highlights of that market report included leasing activity improved 15% over the previous year, ending 2015 with 1.5 million square feet of velocity. The Westchester East submarket contributed the most to leasing activity accounting for 64% of all leasing activity this year, followed by White Plains CBD with 16%. One of the most notable transactions of the first half of 2015 was PepsiCo’s relocation of 361,181 square feet in White Plains. In addition, CBRE reported that transaction activity in the 10,000-square-foot to 50,000-square-foot range increased by 82% in the fourth quarter of 2015, raising the average deal size by 15% to 5,486 square feet.
CBRE’s Cuddy said that there continues to be continued momentum in health care, medical technology and research sectors in the county’s commercial real estate market. He said that the county, the municipalities and the private sector are working together to create the needed housing stock as well as opportunities for these businesses to locate and expand in the county.
Weisz said that the overall improving economy has given companies more confidence to secure long-term lease deals that in the past. In addition, he noted that many commercial property owners have initiated capital improvements at their properties to keep them competitive and attractive to existing tenants and new users.
He also said that the availability of qualified workers in Westchester is improving and that the county’s very attractive asking rents will drive businesses in the region to Westchester. CBRE reported that at the end of the fourth quarter of 2015, the average asking rent for office space in the county was $27.36-per-square-foot, relatively flat as compared to the $27.29-per-square-foot rate posted 12 months earlier.
Photo Caption: The BOMA panel featured from left, William Mooney III, director of the Officeof Economic Development of Westchester County, John Barnes, senior vicenpresident, managing director suburban division for Reckson, a division of SL Green; William Cuddy, executive vice president, CBRE Group; Robert Weisz, chairman, CEO and founder of the RPW Group and Thomas Sklow, vice president of development and leasing for Keystone Property Group.