Balance is a challenge for Westchester market.

Balance proved a challenge for Westchester County's office market in 2005 as more activity from small and mid-sized users was offset by fewer large transactions, a lack of relocations and expansions, and the return of large blocks of space by some of the area's most influential tenants, according to CB Richard Ellis.

White Plains, however, seemed resistant to this trend, as tenant stability resulted in the only positive absorption and lower availability in the county compared to 2004.

The Eastern submarket, rather than the CBD, though, drove the county's velocity, as demand for space at 760/800 Westchester Avenue contributed heavily to almost 2.1 million SF of leasing throughout the area for the year--a level about equal to the previous 12 months.

On the other hand, the East also saw the lion's share of the market's major returns in 2005, including significant downsizings by IBM, MCI, ITT Industries and Paxar, among others. When added to relocations and downsizings in other parts of the county by companies like Reader's Digest, Kraft Foods, Comstock, Ciba-Geigy and Taro Pharmaceuticals, these givebacks factored into countywide negative absorption totaling 363,990 SF. Availability, thus, rose for the second straight year--9% from last December to 4.7 million SF, and the availability rate bumped up one and a quarter percentage points to 14.5%. Average asking rent, responding to the increase in supply, remained almost the same at $26.08 per SF.

Despite these mixed results, Robert Caruso, managing director of CB Richard Ellis' Westchester/ Fairfield office, sees 2005 as a good year for Westchester County. "Whenever our base users, i.e. those occupying less than 20,000 s/f, are active, as they were in 2005, I consider that a sign of strength. Having large transactions to supplement their activity is always welcome, of course, but as long as the bread and butter tenants still generate significant activity, the market is doing well.

"In addition, though the amount of space returned this year was notable, Westchester did an excellent job of absorbing a lot of that--and most of the demand arose not from outside tenants but from the activity of existing county companies. Further, investment sales continued to accelerate over the last 12 months as investors look through the current slowdown into the future and saw Westchester as a desirable investment. Properties sold during the year included 711 Westchester Avenue in Harrison, 2 and 4 Gannett Drive in White Plains, White Plains Plaza in White Plains and 411 Theodore Fremd Avenue in Rye. And, in what is definitely the biggest transaction in the county in at least a decade, the 1.6 million sf EastRidge Portfolio traded for $255 million to Reckson Associates."

Space leased as new commitments from local companies, in fact, increased 21% from last year to 1.2 million s/f, while relocations dropped another 2% to 316,500 s/f. Reasonable pricing and tenant incentives in Downtown Manhattan and desirable areas of New Jersey, and the slowing of demand for redundant/disaster recovery/back office operations could possibly explain this decline of movement into Westchester. In total, intra-county activity accounted for 60% of all deals in 2005 from 49% last year. Companies making those moves, however, often leased about the same amount of or slightly less than the space they previously occupied--an indication that while the economy is improving, many businesses played it safe amidst the uncertainty posed by the war in Iraq, increasing fuel prices, unpredictable weather conditions, and the slow pace of growth in this recovery. Expansions, therefore, fell 39% from last year to 443,160 SF or just 21% of space leased from 34% in 2004.

Fewer expansions and no big relocations meant that smaller tenants, always the majority of the county's occupants, played the major role in Westchester's outcome for 2005. Altogether, space leased by users with requirements below 25,000 SF grew 22% in a year to more than 1.4 million SF, or 69% of all velocity from 56% last year. Westchester County, in fact, saw only one deal exceeding 100,000 SF in 2005--Reader's Digest's lease of 204,690 SF at its former headquarters building in Pleasantville. The average transaction size, therefore, dropped 14% from last year to 6,104 SF.

Most of the larger deals that were completed in 2005 took place in the Eastern submarket, where leasing jumped 15% from last year to 875,430 SF due to a frenzy of activity at 760/800 Westchester Avenue in Rye Brook. In total, 256,160 of space was leased in the two properties by a variety of tenants in many different industries, accounting for 29% of the submarket's total demand for the year. The North also saw velocity escalate 50% over the past year primarily as a result of Reader's Digest's recommitment. In the CBD, however, lack of opportunity caused a 26% drop in leasing compared to 2004.

White Plains, though, was the only place in the county where tenants had fewer options than at the end of December last year. Every other submarket saw significant space returns as a result of either corporate downsizing or relocation, and many of those came in extremely large blocks, bringing about more than 363,990 s/f of negative absorption countywide in 2005. In total, space available in blocks exceeding 50,000 s/f increased 23% from last year to 2.0 million s/f in 19 blocks or 44% of the county's total supply. Among the largest returns of 2005 were IBM's 470,600 s/f in White Plains and 46,100 s/f in Hawthorne, MCI's 180,000 s/f at Reckson Executive Park in Rye Brook, Reader's Digest's 171,000 s/f in Pleasantville. On a positive note, several of these new blocks, like ones successfully absorbed in the past at Texaco and Altria Group's former headquarters, are located in more active segments of the county, increasing the likelihood of timely leasing.