One of the area’s leading commercial real estate companies found that the market for office space remained pretty slow over the past several months.
Cushman & Wakefield issued the following release today to detail their findings:
Cushman & Wakefield today released its third quarter 2012 report for the Westchester County office market indicating that market fundamentals showed marked signs of weakness both for the quarter and year to date. Absorption levels plummeted due to anemic leasing coupled with major space returns. More than 600,000 square feet (sf) of overall Class-A office space were added to the market this quarter, while only 152,619 sf were leased.
Countywide, the Class-A overall vacancy rate rose to 23.0%, a 1.5 percentage point increase over the 21.5% overall vacancy recorded last quarter, and a 3.4 percentage point increase over 3Q-11’s 19.6% overall vacancy rate. A major contributor to the year-over-year increase in overall vacancy was the addition of more than 820,000 sf of Class-A availabilities since 3Q-11. This quarter, IBM alone added 248,000 sf at 19 Skyline Drive in Hawthorne and another 200,000 sf of owner-occupied space at 294 Route 100 in Somers. Of the 5 million sf of Class-A overall availabilities, sublease vacancies accounted for 13.6%, or 684,436 sf of the total space available and had the largest delta over third quarter 2011, increasing by 45.2% as compared with only a 16.4% increase in year-over-year direct space.
The Northern submarket’s Class-A overall vacancy rate is the highest in the county at 29.4%, a 6.2 percentage point increase over last quarter’s 23.2% overall vacancy. This was primarily due to the IBM space added to the market this quarter. The Central submarket also experienced a significant hike in Class-A overall vacancy increasing by 5.8 percentage points from last quarter’s 17.8% to the current 23.6%. There were slight improvements in Class-A overall vacancy rates over last quarter in the White Plains Non-CBD and Eastern submarket, decreasing from 27.2% to 26.6% and 22.5% to 22.3%, respectively.
Westchester County’s overall leasing activity (Class A and B combined) year-to-date 2012 totaled only 704,918 sf, a 15.7% decrease from the 835,785 sf leased in the first three quarters of 2011. In fact, this year-to-date leasing activity represents the second slowest year-to-date period in the last ten years, only surpassing the 629,285 leased in 2009 through the third quarter. Class-A leasing activity for the third quarter was 152,619 sf, a 22.7% decrease from the 197,382 sf recorded last quarter, and a 42.1% decrease from 3Q-11’s leasing activity of 263,668 sf.
The largest drop in Class-A leasing activity occurred in the Central submarket, where it decreased 80.1% and 61.2%, respectively from the 75,678 sf last quarter and the 45,987 sf leased in 3Q-11 to the current 15,066 sf. The Eastern submarket was the only submarket to show an increase in leasing activity from last quarter, albeit small, increasing from 47,434 sf to 64,084. It still fell short, however, of the 87,085 sf leased in 3Q-11.
There was a substantial amount of renewal activity this quarter. In fact, the largest transaction this quarter (and year to date) was Fuji Photo Film USA’s 112,584 renewal at 200 Summit lake Drive in Valhalla. Other significant deals in the third quarter were MeritDirect’s 22,798-sf lease at 2 international Drive in Rye Brook; Wilson Elser Moskowitz Eldeman & Dicker’s 11,746-sf expansion at 1133 Westchester Avenue in White Plains; Key Bank’s 10,456-sf lease at 660 White Plains Road in Tarrytown; and Evolution Market’s 10,279-sf renewal at 10 Bank Street in White Plains.
“While to-date statistics have portrayed a bleak picture for Westchester County, there is, surprisingly, a great deal of activity currently in the market,” said Jim Fagan, senior managing director and market leader of Cushman & Wakefield’s Fairfield and Westchester County regions. “There are some large tenants in the market that are considering their different options. This activity will translate into significant transactions in the fourth quarter, producing a more positive result for 2012.”
With more than 600,000 sf of Class-A office space added to the market this quarter, Class-A overall absorption plummeted this quarter going from negative 74,175 sf recorded last quarter to negative 477,344 sf this quarter. The Northern and Central submarkets experienced the largest drop, going from last quarter’s negative 2,867 sf to the current 200,126 sf and positive 14,677 sf to the current negative 276,638 sf, respectively.
Direct average asking rent for Class-A office space in the county averaged $29.05 square foot (psf), down from the $30.13 psf recorded last year and the $29.64 psf last quarter. Four out of the six Westchester County submarkets experienced year-over-year decreases, with the exception of the White Plains CBD and the Eastern submarkets, which increased $0.49 psf and $0.61 psf, respectively. Effective rents, which include concessions, such as tenant-improvement allowances and free rent, however, are estimated to be as much as 15% lower than the asking rents.
The White Plains Non-CBD submarket experienced the largest decline in Class-A direct average asking rents dropping nearly 10% from last year’s $31.21 psf to the current $28.18 psf.