Westchester/Fairfield weathers instability in office market.

In a Class "A & B" office market comprising over 900 buildings totaling over 90 million SF, both Fairfield and Westchester counties have maintained a combined vacancy rate over the last 12-month peiod (including sublease space) that has not deviated by more than approximately 1 percent, while the total available space between the two counties hovers at approximately 12 million SF. This represents approximately 2.6 million SF of sublease space in Fairfield County and about one million SF in Westchester County (only 100,000 SF from the prior 12-month period.)

The only dramatic difference since the end of the second quarter of 2002 is that Fairfield rents have dropped from an average of $29 per SF to between $26 to $27 per SF. Westchester has remained relatively stable at around $25.50 per SF.

When comparing my competitive Regional and National Brokerage entities vacancy rate reports with our subscription to listing services and available data, both counties hover between a 14 percent and 17.5 percent vacancy rate, depending on what type of space or buildings are included or excluded from their occupancy or vacancy rate figures. We use these sources jointly as an accurate barometer of the market.

Fairfield County has absorbed 1 percent or approximately 500,000 SF since the second quarter of 2002, while Westchester's vacancy rate (including sublease space) has increased by approximately 1 to 1.5 percent, reflecting a total vacancy rate nearing 15.50 percent, compared with over 14 percent at this same time last year. This is despite the 383,000 SF NY Life transaction at One Rockwood Road in Mount Pleasant, the 118,000 SF transaction at the Cohen Brothers 333 Westchester Ave. complex with Ameriquest Mortgage and the addition of USI Insurance signing their 32,000 SF lease at 555 Pleasantville Road in Briarcliff.

The transactions that spurred Fairfield's strength this past twelve months include the signing of GE Capital for over 220,000 SF at 201 Merrit 7 in Norwalk, Graham Capital Management who purchased the 105,000 SF 40 Highland Avenue property also in Norwalk and Ziff Brothers 61,000 SF long term relocation to 55 Railroad Avenue in Greenwich, Conn.

While we anticipate new 50,000 to 100,000 s/f blocks of sublease and direct space entering both markets, there are various Fortune 100 companies from the New York City environs who are projected to secure varied leasing and or subleasing transactions in the coming months. Westchester and Fairfield Counties have always been the recipient of NYC relocating entities, primarily when New York City's rental rates escalate dramatically.

Today, in a softened office market with an abundance of both direct and sublease space, a New York City tenant's main concern is not just rental rates but is acccompanied by other issues. These include: safety and building security, the potential for substantial increases in their tax, operating escalations and commutation costs for both principals and employee base and the possibility of a new commuter tax.

I anticipate seeing varied hedge funds, trading firms, disaster recovery centers, and other financial oriented companies concluding transactions within our market over the next number of months. As witnessed last year by Skadden Arps acquring 50,000 SF in White Plains, Andor Capital Management signing at the Greenwich American Center for over 140,000 SF and the acquisition of Morgan Stanley signature Texaco former headquarters', I expect an increase of various prestigious metropolitan relocations.