Westchester market enjoys a healthy start.

The Westchester real estate market enjoyed a healthy start to 1997. All market indicators were encouraging: leasing activity remained strong, vacancy declined, net absorption was positive, and the direct asking average rental rate rose, according to the Research Services Division of Cushman & Wakefield of Connecticut, Inc.

Leasing activity during the first three months of 1997 totaled 464,310 square feet, registering a 15 percent improvement from last year and a 52 percent increase from 1995. Approximately 81 percent, or 380,378 square feet of the leases, occurred in Class A facilities, with numerous transactions completed by small- to mid-size tenants. A significant amount of the leases were expansions of current tenants, predominantly in the 1,000 to 4,000 square-foot range.

The Central submarket was the only submarket in Westchester County to experience a decrease in leasing activity from last year's level. This decrease can be attributed to the limited amount of available space remaining. Currently, the overall vacancy rate in the Central submarket is 9.8 percent, and the direct vacancy rate is 6.7 percent, leaving little room for activity. The tight market conditions in the Central submarket are expected to spill over into the surrounding submarkets in 1997.

As the Westchester County real estate market continues to improve, the number of large blocks is expected to diminish. Currently, there are several tenants searching for large blocks of space in Westchester County, including Guardian Life Insurance's requirement for approximately 400,000 square feet. In addition, surrounding areas, such as Fairfield County and Manhattan, have limited available space, leaving tenants with few options. Westchester County is poised to benefit from the number of large blocks it has remaining, given the surrounding area's tight market conditions.

Leasing activity was particularly strong in White Plains, where the two largest leases took place. Oxford Health Plans leased an additional 41,032 square feet at Westchester One in the Central Business District (CBD) and Direct Response Corporation leased 24,340 square feet at 4 Gannett Drive in the Non-CBD market. Also in the Non-CBD, Arrow Tech signed for 12,566 square feet at 2 Gannett Drive, and Halo Industries committed to 11,792 square feet at 105 Corporate Park Drive. An additional contributor to the improved leasing activity was Entex's 10,038 square-foot sublease at Royal Executive Park IV in Rye Brook.

The overall vacancy rate declined to 16.6 percent, a 1.8 percent decrease from last year at this time. This represents Westchester's lowest vacancy rate since 1990. The largest decline occurred in the White Plains CBD, where the overall vacancy rate fell by an impressive 3.5 percentage points in one year to 22.9 percent, as a result of strong leasing activity.

Although the overall vacancy rate is declining, a significant amount of Class B space remains on the market. Currently, 36.4 percent of the overall Class B inventory is vacant, compared to 18.8 percent of the Class A inventory. As a result, developers are actively seeking dormant Class A and well-located Class B buildings to upgrade and reposition these properties to compete in the Class A market.

Contrary to last year at this time, when a substantial amount of space was added to the market and net absorption registered negative 550,657 square feet, no large direct blocks of space were added in Westchester County during the first quarter. As a result, the net absorption finished at positive 382,038 square feet. Class A space registered positive 394,910 square feet, and Class B was essentially flat at negative 12,772 square feet. While net growth finished positive for the first quarter, the marketplace is forecasted to be negatively affected again by corporate consolidations. For instance, by the end of the year, Prodigy will reduce their office space by two thirds. The company plans to stay in the White Plains CBD end either remain in approximately 150,000 square feet of their 339,215 square-foot headquarter's facility at 445 Hamilton Avenue, or lease space at the vacant 360 Hamilton Avenue. This down-sizing could add a substantial amount of available space to the market in the second half of the year, impeding some of the progress made by continued strong leasing activity.

One of the most prominent sales transactions to occur during the first quarter of 1997 was prompted by the entry into the Westchester County market by the Call Realty Corporation, a New Jersey-based real estate investment trust. Cali Realty Corp. acquired Elmsford, NY-based Robert Martin for $440 million. Robert Martin was the largest private real estate development company in the Westchester, NY, and Fairfield, CT, region, managing over 4.1 million square feet of office and industrial space in both counties.

Another significant sale concluded was IBM Corp.'s 336,000 square-foot Thornwood Conference Center in Valhalla, NY to The Legionaries of Christ, which plans to use the facility as a training center. Under the sale terms, IBM will remain at the site's office building until March 1999.

The average asking rental rate during the first quarter reached $23.19 per square foot, a $.96 per square foot increase from the first quarter 1996. The Class A average rental rate, currently $24.25 per square foot, is the highest rate recorded since 1990. As space in the Class A facilities continues to diminish, effective rental rates are expected to continue to rise, while workletters and rent concessions lessen. As for Class B, rates continue to remain below $20, currently resting at $19.68 per square foot.

The commercial real estate market in Westchester County is expected to continue its positive growth track during 1997. Future growth, however, will likely be offset by continued corporate consolidations in the area.