Westchester Commercial Market Ends 2021 On Generally Positive Note in Most Sectors
Real Estate In-Depth | February 2, 2022
RYE BROOK—The Westchester County commercial market ended 2021 on a generally positive note with robust growth in multifamily developments as well as a strong performance by the industrial/flex market while retail fundamentals continued to improve and the investment market showed modest gains. However, entering 2022, the office market struggles to gain traction, according to the recently released Houlihan Lawrence Q4 Commercial Market Report.
The following are some of the highlights from the fourth quarter 2021 report issued by the Houlihan Lawrence Commercial Real Estate Group, which is based in Rye Brook.
2021 Rent Growth Continues for Westchester Multifamily
Westchester multifamily projects are enjoying extraordinary strength. Occupancy continues to inch upwards, and the region is effectively at full occupancy. There were fewer new unit deliveries during the quarter which contributed to an on-going strength. Multifamily fundamentals continue to be positive all around.
Inflationary pressures have increased the attractiveness of this asset class that is viewed as the best inflation hedge. In most residential contracts, lease rates can be re-set every year helping landlords keep up with inflation, the report stated. Rent growth projections vary widely depending on the location and project features. However, during 2022, multifamily owners will be seeking to achieve CPI growth in their rent increases. It is estimated that, on average, Westchester multifamily owners may achieve mid-single digit rent growth in new leases and modestly below that for renewals.
Consumers Fueling a Nascent Recovery in Retail
Retail fundamentals continued the improvement trend started in the third quarter of 2021. For a second consecutive quarter, the supply-demand balance for retail real estate was favorable, and more space was leased than vacated. Occupancy increased and lease prices trended upwards. Both, direct and sublet markets had positive activity, but the direct markets dominated suggesting that tenants are confident in the future and committing to permanent leases.
The rebound Houlihan Lawrence is observing across retailers demonstrates the resilience of U.S. consumers. Large regional malls are enjoying a recovery in foot traffic. Consumers are venturing to retail malls and other establishments seeking to purchase non-commodity goods and once again, looking for services and entertainment.
New concepts, many initially developed in the digital space, are beginning to seek a presence in traditional retail stores. At the same time, successful service providers are choosing to set-up businesses in retail spaces to enhance their presence and appeal to consumers. Fast casual food chains are reopening previously closed stores and so are beauty retailers. However, apparel chains have, for the time being, remained laggards in this recovery.
Office Sector Struggles to Gain Traction
Following a strong third quarter of 2021, this segment of the property markets took a step backwards. During the fourth quarter, supply demand was unfavorable with more office space surrendered than space leased. Most of the space that was returned to landlords had direct leases. The sublet market performed slightly better. However, the combination of both, direct and sublet office space, reflected a surplus of space. Despite new availabilities, the silver lining in the quarter was strong office leasing activity. This is noteworthy and suggests that even though office departures overwhelm the data, there is new and strong demand developing.
Lease pricing held firm, partly reflecting higher operating costs for landlords and higher costs of providing tenant incentives. In this economic recovery, updated office space, building amenities and, proximity to transportation, contribute greatly to leasing success. Landlords also face tenant demands for greater term flexibility. Shorter lease terms have become a common tenant request as businesses try to navigate an uncertain economic and labor environment.
Westchester Industrial Segment Flourishes
Industrial and flex properties continue to experience the strong demand that brokers have come to expect in an environment where digital fulfillment is growing rapidly. The fourth quarter of 2021 was characterized by demand that exceeded supply of space, low vacancy, and robust leasing. Price continued to trend upwards. Anecdotally, Houlihan Lawrence Commercials stated that it is hearing of plans for new warehouses primarily in northern Westchester and other northern New York counties where zoning and land availability make new construction possible.
Investment Markets Increasingly More Active
Transaction data for fourth quarter of 2021 showed modest improvement over the prior quarter. However, the overall transaction level remains depressed. Investor interest in commercial real estate is strong, but inventory of investable product is very low. Interest rates are expected to trend higher in 2022 which may motivate potential sellers to bring their properties to market.
Houlihan Lawrence Commercial Real Estate Group, a full-service division of renowned brokerage Houlihan Lawrence, specializes in investment opportunities, office condominiums and leasing, industrial and retail sales and leasing, land acquisition and development as well as municipal approval consultation. The firm’s agents operate in New York City, Westchester, Putnam, Dutchess and Fairfield counties.