Vacancy rates on the retreat in Westchester market.

The Westchester County Office market finished the first half of the year in strong fashion, with lower vacancy rates and positive absorption in the second quarter, according to commercial real estate services firm Cushman & Wakefield.

After the market was inundated by space in 2004 from formerly corporate owned facilities, the new space has started to be absorbed by a strong tenant transaction activity, particularly at 800 Westchester Avenue in Rye Brook, the former Altria headquarters. The overall vacancy rate in the county ended at 15.8% at the end of the second quarter, down from 16.8% at the end of 2004.

The large drop in the vacancy rate was driven by strong leasing activity in the Eastern* submarket, where the overall vacancy rate dropped from 21.7% at the end of 2004 to 16.5% at the mid-year 2005 point.

Year to date, the county has totaled 867,727 square feet (sf) of leasing activity; the Eastern submarket represented over 40% of that activity. "While major leasing activity in Westchester County for the most part took place at 800 Westchester Avenue, several large deals in the pipeline and the continued improvement of the local economy, are encouraging signs," said Jim Fagan, senior managing director and head of Cushman & Wakefield's Westchester County, Fairfield County and Long Island offices.

"In Westchester County much of the activity has been small to mid-sized leases as well as expansions and renewals."

Over the last year, rental rates in the county have remained stable in the wake of large availabilities entering the market. Direct asking rental rates in the county ended at $28.63 per square foot (psf), an increase over the rental rate of $28.18 psf at the same time last year.

800 Westchester Avenue was the dominant property in the Eastern submarket and the county at mid-year. BridgeCom International signed the largest lease in the county during the second quarter for 57,000 sf. The company is relocating from Mount Pleasant Executive Center after a merger with Broadview Network Holdings that will add 107 jobs to the company's existing workforce.

This major lease comes on the heels of the Triarc Companies fourth quarter 2004 lease of 52,960 sf and subsequent relocation of 55 jobs from Manhattan to Westchester County. In total, the building has leased 209,235 sf since Altria's departure, over one-third of the space originally available at the property.

The only major investment transaction to close in the first half of 2005 was the sale of 2-4 Gannett Drive. The 223,595-square foot property is located in the White Plains Non-CBD sold for $42.0 million, or $187 per square foot. While there was limited investment activity that has closed year to date, there are several properties on, or coming to, the market that are expected to close in the latter half of 2005. The investment property market remains strong with high capital demand.

* The Eastern submarket consists of Hartsdale, Harrison, Larchmont, Mamaroneck, Port Chester, Rye, Purchase, Rye Brook, Scarsdale