Corporate downsizings hamper Westchester office market.
Net absorption totaled a negative 697,147 square feet for the third quarter, a major reversal from 84,574 square feet of positive absorption in the same period a year ago. Year-to-date, however, absorption remained a positive 97,429 square feet. More than 450,000 square feet of space was leased during the past three months, 3 percent below the leasing activity of the third quarter of 1997. However, leasing activity year-to-date totaled approximately 1.8 million square feet, 28 percent higher than the level reached a year ago at the same time.
The third-quarter county-wide availability rate was 16.6 percent, up more than two percentage points from three months ago, but essentially unchanged from the same period a year ago. The Westchester North segment had the county's lowest availability rate at 6.4 percent, while downtown White Plains had the highest at 30.6 percent.
The county-wide average asking rental rate for Class A and B space was $23.08 per square foot, up $2.09 from the third quarter of 1997. Average asking rental rates ranged from $25.60 per square foot in the Westchester East segment to $16.48 per square foot in the Westchester South segment.
All five market segments surveyed reported negative absorption for the third quarter, with the Westchester East segment the hardest hit at negative 412,776 square feet. Among the companies returning space to the market in the third quarter were Oxford Health Plans in White Plains (296,032 square feet); Texaco in Harrison (220,000 square feet); IBM in Harrison (110,000 square feet); Hitachi in Tarrytown (57,000 square feet); Entex in Rye Brook (46,530 square feet); and Nine West Group in White Plains (45,000 square feet).
In addition, several large unoccupied office buildings were renovated and upgraded to Class B status, further increasing the inventory of available space. Among these buildings were 75 South Broadway in White Plains (102,000 square feet); 100 Grasslands Road in Elmsford (45,000 square feet) and 101 East Post Road in White Plains (40,000 square feet).
"Once again, corporate downsizings have stalled an otherwise healthy office market in Westchester County," said Michael A. Klein, executive director of Insignia/ESG's Westchester-Connecticut office. "While the current cutbacks are less severe than in previous years and involve a more diverse tenant base, there are fewer major lease transactions to help offset the downturn. In fact, with the exception of renewals, almost two years have passed since Westchester has seen a lease transaction measuring 100,000 square feet or more."
The largest lease transaction in the third quarter was Westcon, Inc.'s 66,082 square-foot lease at 520 White Plains Road in Tarrytown. Other significant leases in the third quarter included IBM's 41,178 square-foot expansion lease at 44 South Broadway in White Plains and AMBI's 22,670 square-foot lease at 4 Manhattanville Road in Purchase.
Klein said the recent downsizings are not driven by the slumping stock market, but rather are the result of industry-specific problems. "Although the third-quarter results are disappointing, the office market tends to finish the year with a strong fourth quarter," he said.
A survey of Westchester County's five market segments showed:
Westchester County Central Business District
Downtown White Plains ended the third quarter with a negative net absorption of 197,068 square feet. As a result of the volume of returned space, the segment's availability rate rose more than four percentage points from mid-year, although this number is still down slightly from 31.1 percent in the third quarter of 1997. Leasing activity for the quarter totaled 126,362 square feet, a 19 percent decline from the total amount leased in the third quarter of 1997. However, year-to-date leasing activity totaled 321,318 square feet, slightly ahead of the 306,486 square feet of space leased in the first nine months of 1997. Major deals included Community Care Network, IBM (expansion), Light House International and Optum Group.
Westchester County East
Due primarily to downsizings by Texaco and IBM, the Westchester East segment accounted for nearly 60 percent of the total negative absorption in the county during the third quarter. The segment's availability rate jumped nearly four percentage points from three months ago to 17.5 percent, but is still a full percentage point lower than a year ago. More than 91,000 square feet was leased during the third quarter, off 40 percent from the levels achieved in the third quarter of 1997. Leasing activity year-to-date totaled 713,927 square feet, a 43 percent increase from leasing activity in the first nine months of 1997. Major deals included AMBI and Professional Risk Managers, Inc.
Westchester County West
The Westchester West segment led the market in leasing activity in the third quarter with 174,321 square feet of space leased. A total of 379,825 square feet was leased in the first nine months of 1998, a 91 percent increase over 1997's third-quarter year-to-date amount. The submarket's absorption, however, was a negative 40,525 square feet for the quarter and the availability rate was 14.7 percent, up more than four percentage points from the same time a year ago. Major deals included Amera Health and Westcon, Inc.
Westchester County North
The availability rate in the Westchester North segment was 6.4 percent, the lowest rate In the county and down more than two percentage points from the third quarter of 1997. Leasing activity for the quarter totaled 48,835 square feet, a 33 percent decline from the third quarter last year, while absorption was a negative 38,375 square feet. Absorption year-to-date totaled 204,261 square feet. Aconda Theupeutic accounted for the only major deal.
Westchester County South
The third quarter in this segment was characterized by a 71 percent drop in leasing activity from last year and slightly negative absorption. The availability rate for the quarter was 13.3 percent, an increase of nearly two percentage points from the third quarter of 1997. Year-to-date, only 53,263 square feet of space was leased, compared to 201,882 square feet leased for the first nine months of 1997. There were no significant ease transactions to report in the third quarter.
The Insignia/ESG Third Quarter Office Market Report surveyed 290 multi-tenant Class A and B buildings in Westchester County. Government-owned and-occupied buildings, medical office buildings and buildings under 20,000 square feet were excluded.