Continued downsizing tempers suburban optimism.

McCarthy O'Callaghan Company, one of the leading commercial office brokerage firms in the Westchester-Fairfield region, completed 470,000 square feet in office leasing transactions in 1994.

John R. McCarthy, a principal of the firm that has offices in White Plains and Greenwich, said last year's results indicate that the Westchester market has improved dramatically in the past year, while the Fairfield County market continued its robust recovery.

However, McCarthy said, "I am cautiously optimistic about how the industry will fare in 1995 because there appears to be further corporate downsizing by area corporations that will have a dramatic impact on the local real estate market."

Recent year-end commercial office vacancy rate reports indicate both Westchester and Fairfield County office markets are improving, with lower vacancy rates and high levels of absorption, McCarthy said. However, companies such as IBM and NYNEX will reduce their office presence in Westchester in 1995, which will drive vacancy rates back up in the short term. In Fairfield, Walden Books will be moving out of Stamford, and several other large corporations have announced downsizing programs, McCarthy said.

"What is heartening about the industry heading into 1995 is that both Westchester and Fairfield are viewed by many as prime, attractive markets," he said. "Any company that is considering moving out of New York City or relocating to this region, will seriously consider these markets."

Even the troubled White Plains market showed vast improvement at year's end, with its vacancy rate down to just about 30 percent, as compared to 35 percent at the start of the year, according to some vacancy rate reports.

McCarthy O'Callaghan Company played a large part in the city's turnaround by brokering a number of large deals at White Plains Plaza. In 1994, the firm, which is exclusive leasing agent for the twin-tower complex, brokered sizable deals with Nextel Communications and several divisions of Metropolitan Life at White Plains Plaza.

Other sizable 1994 transactions brokered by McCarthy O'Callaghan in Westchester County included: The sale of the Axe Castle in Tarrytown for approximately $1.8 million; One of the largest lease renewals of the year with Empire Blue Cross & Blue Shield for 97,885 square feet of space in Yorktown Heights; The relocations of Candie's from New York City to 14,430 square feet at 2975 Westchester Avenue in Purchase; and brokering deals for new Merrill Lynch office locations in Mount Kisco and Scarsdale and the expansion of its existing White Plains operations at White Plains Plaza.

The brokerage firm announced it had reduced the office vacancy rate at White Plains Plaza from 26 percent at the start of 1993 to approximately 4 percent by year's end. In addition, McCarthy O'Callaghan continued to lease up Harrison Court, a 100,000 square-foot complex. Since being named exclusive broker for the four-building complex two years ago, the office vacancy rate has been trimmed to 13 percent. Several other transactions are expected to close in early 1995.

McCarthy attributes the success at Harrison Court to a decision made by his firm and ownership (Acadia Management of Long Island) to change the use from office to a medical-related development. Last year, 36,342 square feet in lease deals were signed at Harrison Court.

In Fairfield County, the firm brokered the relocation of EMCOR Group, Inc. (formerly JWP Inc.) from Rye Brook to the Merritt 7 complex in Norwalk, a deal that totaled 15,725 square feet; and Greystone Realty's 12,693 square-foot lease at 2 Pickwick Plaza in Greenwich, as well as a number of small transactions in Stamford.

Heading into 1995, McCarthy believes the commercial office markets will continue to make strides, but his optimism is tempered by the continuing trend in the corporate arena to reduce staff and cut office space requirements.

"The MasterCard relocation to Westchester County is great news for the region, and there are several other large requirements currently studying the county as a potential relocation site," McCarthy said. "However, we are still going to lose NYNEX in 1995 and there is talk that other large companies may continue to institute significant cuts in workforce and office space this year. The problem we are faced with is taking one step forward and then one step back in this recovery."

McCarthy said that while the relocation of Swiss Bank from New York City to Fairfield County is a major coup for the region, the effect of that mega-deal will not be felt for some time.

However, once construction begins on the new headquarters building, which will total more than 800,000 square feet, it will bring new life and vitality to the Stamford market.

"Stamford and other regions of Fairfield County, including Greenwich and Norwalk, are extremely active and space is getting tight," he noted. "In coming years, I would expect new construction activity in the office sector, due in large part to the Swiss Bank deal."