White Plains Looking South

Vacant former Wallachs on Mamaroneck Avenue, January 2012

"P   Potential for a double-dip recession seems to have passed. The vacancy level remains persistently high. Historically, low interest rates have helped even poorly performing buildings continue to operate. The opportunity for tenants to trade lease term for rental concessions continues to be an attractive option for both tenants and landlords. Re-adaptive uses of office buildings (medical, residential and education) are being considered. Today's landlords have to be extraordinaryily aggressive to attract and maintain tenants." 

The Westchester County real estate market continued to show signs of weakness despite economic improvements. The Class-A overall vacancy rate has averaged 19.9% over the last three years, which is 38.2% higher than the healthy overall vacancy rate of 14.4% achieved in 2007. 

The White Plains Scene

The White Plains Non-CBD’s Class-A overall vacancy rate stands as the highest in the county at 23.7%. This is expected to increase even further when Starwood Hotels & Resorts adds another 380,000 square feet (sf) of available space to the market at 1111 and 1129 Westchester Avenue in 2012.

Countywide, yearly leasing activity (Class A and B combined) registered at 1.2 million square feet (msf) each in 2010 and 2011. This is slightly higher than the 1.0 msf leased in 2009, but 40% lower than 2007’s leasing activity of almost 2.0 msf.  Class-A leasing activity increased in the fourth quarter to 294,692 sf, compared with the 263,668 sf leased last quarter and the 229,449 leased in 4Q-10.  There was 943,704 sf leased throughout 2011, a slight decrease from the 1,008,087 leased in 2010, but an increase over the 883,884 sf leased in 2009. 

The largest office lease of the year was the law firm Wilson Elser Moskowitz Edelman & Dicker’s 123,350-sf lease at 1133 Westchester Avenue in White Plains. Other significant deals in 2011 were Acorda Therapeutics’ 137,495-sf lease of office and lab space at Ardsley Park in Ardsley, and Richard Fleischman & Associates’ 34,263-sf renewal at 2 Manhattanville Road in Purchase.

Overall absorption YTD, one of the indicators used to see if the market is getting tighter or losing steam, remained negative, registering 236,423 sf of office space added to the county’s vacancy.  This was a marked improvement over 2010’s negative 526,254-sf and 2009’s negative 506,898-sf overall absorption.  Generally, the negative results in the marketplace seem to be easing.

The Rents

Direct average asking rent for Class-A office space in the county decreased more than $1.00 per square foot (psf) over last year from $31.23 psf to the current $30.17 psf. The Northern submarket’s Class-A rental rate experienced the most significant drop of 15.9% from $30.41 psf in 4Q-10 to the current $25.59 psf.  This dramatic decrease was primarily caused by the removal of the 84,000-sf 113 King Street in Armonk, which had one of the submarket’s highest direct asking rents, $35.00 psf.

“While leasing activity has picked up, vacancy remains stubbornly high and the market has remained virtually unchanged over the last year,” said Jim Fagan, senior managing director and market leader of Cushman & Wakefield’s Fairfield and Westchester County region. “Much of the leasing in the county this year has been renewals, which demonstrates how today’s landlords are pulling out all the stops to keep their tenants in place.”

As has been traditional in Westchester County, many tenants chose to renew and stay in place rather than to relocate. In 2011, out of the 15 leases larger than 25,000 sf completed in the county, nine were renewals and six were relocations, although the square footage of tenants renewing vs. relocating was virtually the same.  The motivation in this phenomenon is the fact that tenants can generally achieve better economics with renewals and also don’t incur moving costs. The largest renewal of the year was Skadden, Arps, Slate, Meagher & Flom’s 56,126-sf renewal at 360 Hamilton Avenue in White Plains. 

Other major transactions in the fourth quarter included Blue Ridge Capital’s lease for 32,032 sf, Granite Construction’s 21,047-sf lease, and Continental Casualty Company’s 14,775-sf lease, all at 120 White Plains Road in Tarrytown; and Trade Marketing Promotional Group’s 9,625-sf lease at 711 Westchester Avenue in the White Plains Non-CBD.

“Generally, 2011 has been characterized by malaise.  This market condition is driving landlords to be more creative and aggressive in their approach to leasing,” said Mr. Fagan. “We’ve also seen a fair amount of property conversions this year, primarily from office to medical and market deals continue to favor the tenant.  As the economy continues to improve in Westchester County, however, we’re confident that the real estate market will get stronger, as well.” 

WESTCHESTER COUNTY ECONOMY

Employment in Westchester County is estimated to have increased by approximately 1,300 jobs in the fourth quarter, continuing the trend of slow, steady growth that began in early 2010. The county has one of the lowest unemployment rates in the state at 6.2% as of November, down from 7.1% a year ago.  Westchester County tends to reflect conditions in the rest of the nation, and we anticipate continuing modest improvement in employment in the coming year.  

INVESTMENT SALES

There were a total of four significant investment sales transactions this year compared to only two last year and three in 2009. In terms of square feet sold, the largest sale in 2011 was Ardsley Park, a portfolio of six office and laboratory buildings in Ardsley, sold by Astellas Pharma Inc. to BioMed Realty Trust Inc. for $18 million.

“With today’s exceptionally low interest rates, we anticipate a much more active 2012 for the investment sales market,” said Mr. Fagan.  “In fact, we expect investment sales to make a much larger contribution to the overall health of the marketplace in the coming year.”