Commercial Panel Predicts Hybrid Work Here to Stay; Office Conversion to Residential Will Continue in 2023
Real Estate In-Depth | February 14, 2023
WHITE PLAINS—The annual Commercial Real Estate Roundtable has certainly been known for its share of spot on, sometimes offbeat and even startling predictions over the years. The 2023 program, presented by the Hudson Gateway Association of Realtors Commercial Investment Division, did not disappoint as the panel offered frank assessments of the office, multifamily and retail sectors and even dabbled into the political arena with views on Governor Kathy Hochul’s “The New York Compact” initiative that calls for the development of 800,000 new homes in three years and calls for downstate communities to grow their housing stock by 3%.
The roundtable held at the HGAR offices in White Plains on Jan. 31 was moderated by 2023 CID Chairman Clayton Livingston and featured panelists: William Cuddy, Executive Vice President, CBRE; Sarah Jones-Maturo, President, RM Friedland; Paul Adler, Chief Strategy Officer, Rand Commercial and Tom LaPerch, Director, Commercial Group, Houlihan Lawrence Commercial.
Looking back on 2022, CBRE’s Cuddy reported that there were two significant office transactions. Regeneron Pharmaceuticals, which is undertaking a more than $1-billion expansion of its operations in Greenburgh-Tarrytown, leased 200,000 square feet of space at King St. in Armonk at the Swiss Re Building. The largest sales transaction was New York Presbyterian’s purchase of the Westpark Office Campus at 1111-1129 Westchester Ave., a two-building complex totaling 373,000 square feet of space for $83.5 million. The property was sold by WestPark Associates, LLC, an affiliate of Onyx Equities of Woodbridge, NJ.
Cuddy noted that the year-end office vacancy rate for Westchester County stood at 21.6%. Leasing activity for the year totaled 985,000 square feet, an increase of 4% from 2021’s totals and the highest volume since 2017. The county’s average asking rent, according to the recently released CBRE report was $29.55 per square foot, virtually unchanged from a year earlier.
Rand Commercial’s Adler said in the small-to-mid-sized leasing sector in Westchester, Rockland, Orange, and Sullivan counties, 2022 was a “very good year.”
Adler said in the more “meat and potatoes” niche of the commercial real estate market in the Lower Hudson Valley, the key drivers for growth in 2022 were: medical, non-profit and municipal transactions.
He also pointed out the growth in the hospitality sector as the region continues to evolve into a tourist destination. Adler pointed to several large hospitality deals Rand had brokered involving two major properties in Ulster and Rockland counties that are now under contract. “They are going to be significant tourism and destination locations coming to the Hudson Valley. The Ulster development involves an international investor, while the Rockland project is being spearheaded by a national West Coast investor.
The Hudson Valley is attracting investment in the tourism/hospitality sectors, Adler noted, in part due to the economic impacts of COVID-19. “We have seen an expansion of that market, which was really very tight around the Westchester, Rockland and the Bronx, and now the outer boroughs, the ex-urban areas are really seeing that kind of growth that we would not have seen before,” he said.
Another driver for that growth has been the multifamily housing boom that has taken place over the past few years, Adler added.
RM Friedland’s Jones-Maturo highlighted the changes taking place in the retail sector including the planned transformational redevelopments of the former Galleria Mall in White Plains and the outdated White Plains Mall.
“Our word for Westchester retail for the year ahead is ‘evolution,’ because the Westchester retail landscape continues to evolve,” she said. The county’s retail availability rate is down to levels posted right before the outbreak of COVID, Jones-Maturo added.
Vacant big box spaces in “viable retail locations” are getting filled up, she noted. For example, RM Friedland is the broker at The Center at Port Chester and leases are already out to fill space vacated by Bed Bath & Beyond. Other shuttered Bed Bath locations in Greenburgh and Mount Vernon are also reportedly seeing strong leasing interest.
The Bronx is seeing a major increase in national retailer interest and asking rents are up significantly over 2021. Recently Target announced its fifth location in the borough.
Jones-Maturo noted that Westchester County’s industrial market is very tight at about a 6% availability rate. Asking prices are the highest on record at more than $19-per-square-foot. Property owners have moved forward on some speculative industrial projects in Westchester, she added.
The Bronx industrial market has pulled back after a protracted period of new development projects hitting the market and currently several blocks of 500,000 square feet of space are currently available in the borough.
Houlihan Lawrence’s LaPerch said that his firm saw growth in activity in 2022 and sees the redevelopment of Port Chester’s TOD continuing in 2023.
Another hot market for the brokerage firm was the industrial market north of I-84.
“The pandemic opened up the corridors up north (for industrial uses),” he noted. Now in 2023, the Northern Westchester market is seeing interest from both industrial and multifamily developers.
“We anticipate 2023 to be a very active year in terms of more people looking for value plays,” LaPerch said. “I think it is really a good time to be a broker.”
CBRE’s Cuddy said the amount of vacant office space in Westchester County equates to lining up 160 empty football fields. The vacant office space in Westchester (calculated at four jobs per 1,000 square feet) would accommodate 28,000 jobs.
The current return to work ratio for Westchester office space is currently between 45% to 50%. Cuddy said that hybrid work programs are here to stay.
In terms of Gov. Hochul’s “New York Compact” initiative, Cuddy said that outdated and mostly vacant office properties are ideal for conversion to multifamily since all have the infrastructure already in place. He said the proposed legislation “has the opportunity to create such a dramatic shift in the commercial real estate market and is one of the most important pieces of legislation that we have seen and will see impacting our business” and urged the business community to support the governor’s housing program.
Jones-Maturo said that in order to meet the governor’s housing growth targets, “adaptive reuse is going to be critical,” but she questioned whether small communities such as Larchmont or Hastings-on-Hudson will be able to meet those targets.
“Experiential Retail” will also be a continuing trend to bring new life into some properties. Jones-Maturo said there are approximately 40 pickleball users in the market at the moment.
Alder agreed with LaPerch that the time is right to be a broker, adding that Rand Commercial is very busy trying to secure deals. Adler said that he expects 2023 to be another strong year for the commercial market. He advised the gathering: “This time, with this technology, really requires you to go out and canvass. There is just no other alternative.”
LaPerch said that there is a definite need for more affordable/workforce housing, adding that there has been too much senior housing-only projects developed in the region.
The sponsor of the program was Webster Bank.