Despite a slight increase in vacancies, Westchester/Fairfield rents on the rise.

Fairfield and Westchester counties' economies remained strong throughout 1999 and into the third quarter. However, a number of corporate consolidations within the region negatively impacted vacancy and net absorption rates for office space, according to the Research Consulting Services Group of Cushman & Wakefield of Connecticut, Inc., which has just released its third quarter numbers on Westchester and Fairfield counties' commercial real estate markets.

The overall vacancy rate in Fairfield County registered 10.4 percent at the end of the third quarter, up from 9.8 percent over the same period last year. In Westchester County, the vacancy rate stands at 16.2 percent, up slightly from 15.8 percent at the end of the third quarter of 1998.

During the third quarter of 1999, a total of 577,108 square-feet of office space was leased in Westchester County, and in Fairfield County, 782,667 square feet.

"However, leasing activity has also slowed due to the lack of office space appropriate for small to mid-size businesses, typically within the 5,000 square foot to 15,000 square foot range," said Rebecca Leeds, manager of Cushman & Wakefield of Connecticut's Research Consulting Services. Group. "Businesses requiring this type of space - typically start-up and emerging growth entities that are experiencing a boon in today's economy - have limited choices in the types of space that will accommodate their growing real estate needs."

Specifically, in Fairfield County, leasing activity is down more than 25.7 percent from the end of the third quarter of 1998 and has decreased by 12.7 percent in Westchester County over the year.

To date in 1999, Fairfield County's largest lease was by Citicorp for a 20,000 square-foot expansion to 110,000 square feet at 100 First Stamford Place. In Westchester County, Bayer Corporation leased 62,380 square-feet at 555 White Plains Road in Tarrytown as part of their headquarters expansion, making this transaction the county's largest lease to date this year.

Rentals Rates Still Rising

Despite the slight decline in leasing activity, rental rates have not been negatively affected. Rather, they continue to rise with the direct weighted average rental rate in Fairfield County at $23.28 per square foot. The Greenwich submarket features the county's highest rate of $38.91 per square foot. The direct weighted average rental rate in Westchester County was $26.81 per square foot at the end of the third quarter, with the Eastern submarket registering the highest rate at $28.42 per square foot.

The levels of sales in both counties remain constant, despite the decline in REIT activity, noted Leeds. To date, Westchester County's largest sale was Property Reserve Inc.'s $42.1 million acquisition of 440 and 450 Mamaroneck Avenue in Harrison. The sale of 1 American Lane in Greenwich to Tower Realty for $64.7 million was Fairfield County's largest sales transaction.

"Our research reveals that over the next six to nine months, more office space is expected to become available in Fairfield County, in Norwalk, Shelton and Danbury for example, but with such strong demand fueled by growing businesses, the space will be absorbed. Westchester County vacancy rates, on the other hand, are expected to remain steady," Leeds said.

Cushman & Wakefield anticipates that rents will continue to rise in both counties. Specifically, the direct weighted average asking rental rate in Fairfield County's central business district will reach $30.08 per square foot by year-end 2000 and rise to $34.43 per square foot by year-end 2002, the firm predicts. Westchester County's central business district weighted average asking rental rate is expected to level out to $25.52 per square foot by year-end 2000, but should rise in the years to follow.

"We expect vacancy rates in Fairfield County to rise within the central business district to 9 percent by year-end 2002 and drop to 10 percent in the suburban office markets," said Leeds. "In Westchester County, the reverse will be true, with the central business district's, vacancy rates expected to drop to 23 percent by 2002 and, within the suburban office market, will likely increase to 15 percent by 2002."