Vigorous market for Westchester predicted in '95.

The dark days for commercial property marketing may just about be over. Statistics for 1994 show the field stabilizing, with the slightly declining office vacancy rate the most welcome indicator of stability and eventual recovery. Office leasing, investment property sales, and retail transactions all show marked signs of growth in 1995, according to brokerage professionals at CB Commercial Real Estate Group, Inc.

"Westchester County's office market dynamics are more exciting today than they have been in years," reports Frank Tomasulo, first vice president of CB Commercial. Leasing activity through the end of 1994 amounted to approximately 2.16 million square feet, bringing the vacancy rate to 22.6 percent. This figure represents buildings with a minimum of 20,000 square feet as well as larger single-tenanted leased buildings within parks. This is a 50 percent improvement over 1993, when leasing activity was 1,442,060 square feet. Even more importantly, Westchester County showed a net positive absorption of 440,000 square feet, exhibiting a renewed vitality in the marketplace.

Within this market, the two corridors flanking the county's main artery, I-287, leased in excess of 1.2 million square feet of office space. The highly desirable Westchester corridor continues to attract many small and medium size tenants, as is evidenced by its vacancy rate of 14.3 percent, one of the lowest in the County.

Although non manufacturing employment is growing at only half the rate of the past two decades and office space demands have been reduced by downsizing and outsourcing, there is increased demand in the suburban office market. As fax, modem, and on-line services readily connect corporate staffers everywhere and anywhere, downtown office space is becoming less important.

Tomasulo explains that "Westchester in particular is benefiting, as corporations from New York City and other locations search for significant financial savings, a better educated workforce and a more attractive lifestyle. Companies whose business is based on information technology are moving even farther up the Hudson Valley to maximize the savings."

For the present, office development is limited to projects that are pre-leased or built to suit. Institutional lenders, while cautious, are for the first time in at least five years, once again beginning to make loans for new construction projects. In most instances, developers are required to have at least 25 percent equity, far more than the boom and bust years of the 1980s.

The two recent headline developments in the County, Ciba-Geigy Corporation's relocation to a 60-acre site in the Tarrytown Corporate Center and Mastercard International's purchase of the IBM facility in Purchase, are viewed as a dramatic turning point on the road to full economic recovery.

The multi-million dollar move of Mastercard's corporate headquarters will bring more than 600 workers from Manhattan to Westchester. The sale is the largest real estate transaction in Westchester in the last few years. Mastercard president H. Eugene Lockhart of Greenwich said in The New York Times that the decision to move from Manhattan will save the company $250 million over 15 years compared with costs associated with operating in the city. Both companies had considered sites in Connecticut before finalizing their transactions.

An increase in available investment properties in 1995 will give the commercial property market further impetus. George Lambros III, first vice president of CB Commercial Investment Properties Group, reports that "New York has lagged significantly behind New England in foreclosure and OREO sales. Low interest rates which the Federal Reserve maintained until mid `94 were a boost to New York's banks, but not enough of a boost to rescue many overextended New England banks. However, many New York loans which were restructured over the past five years will soon come due, creating additional foreclosure actions." Lambros cites the Prudential portfolio of investment properties, which were recently sold to Goldman Sachs/J. E. Roberts, as one of the additional sources of property re-sales.

Smaller user and investment properties, according to Nick Russo of the CB Investment Properties Group,. are currently the area of greatest activity, with 10,000 square-foot deals predominating. In this market, there aren't enough properties available to meet the demand, according to Russo. He sees new development and new growth when the market stabilizes early in the year. "Rental rates have hit bottom," Russo says.

Industrial vacancy dropped to 10.5 percent from 14.1 percent, just one year ago, continuing a steady decline in availability in the market area. The recovery in the industrial market spans the entire U.S., making the future bright for further availability decreases.

Colleen Quinn, retail specialist at CB Commercial, reports that the retail property market in the region remains one of the strongest and most stable in the nation, with tenants paying prime prices. The Westchester, the $250 million mega-mall anchored by Nordstrom and comprising 160 shops in all, will dramatically expand the retail market when it opens in March. The upscale mall is expected to complement rather than compete with the two existing malls, The Galleria and the Westchester Pavilion.

In the recent past, the retail field in Westchester was so competitive that entry into the market was possible through foreclosures. These foreclosures are just about finished, according to Quinn, who says that in the future, major retailers' entry into this highly competitive market will involve subleasing or assembling contiguous properties to meld into one large retail space.

When asked to comment on the recent article in The New York Times reporting on the practice of changing parameters to increase square footage in existing leases to justify rent increases, all of the CB brokers expressed dismay, saying that the practice is unethical and that the unwarranted comments in the article were damaging to the brokerage community.