Westchester office leasing market poised for upbeat year.

With New York City experiencing one of the strongest commercial real estate markets ever, and rents becoming largely inelastic in the prevailing economy, we believe Westchester, a sub-market intimately linked to NYC, will remain poised for strong growth in 2007.

Looking back in terms of the Westchester market overall, 2006 was a very active year: leasing velocity was approximately 2.8 million square feet--that's 35 percent above the 2005 level of 2.1 million square feet. Even though this activity was offset by the return of some large blocks of space to the marketplace, the impact on overall absorption was only slightly negative in sharp contrast to 2005 when the market experienced negative net absorption of approximately 400,000 square feet.

In taking a closer look at the Westchester commercial market, it's important to consider first the driver of the County, the White Plains Central Business District (CBD). White Plains had a very active year, with the White Plains CBD more than doubling 2005's activity with over 750,000 square feet leased.

In effect, White Plains has come into its own and become a dynamic 24/7 urban experience. Whereas infrastructure, including direct connectivity to Manhattan was always excellent, now White Plains has much livelier nightlife and significantly more upscale residential space. The city has turned itself around over the last 5-10 years with dynamic new residential and mixed-use developments as well as renovated office properties attracting an expanding tenant base. With vacancy rates in the CBD in the past five years down from 22 percent to around 11 percent, we have every confidence that with continued limited availability and increased rental rates the White Plains Central Business District has a bright future. In turn, this will benefit the peripheral markets, the non-CBD and the east and west Westchester markets.

The East submarket, including Harrison, Purchase and Rye, was by far the most active submarket in 2006, capturing nearly one million square feet of the space that was leased.

Significant investment activity in this submarket and repositioning of many of those buildings has created significant competitive opportunities for tenants.

For example, Platinum Mile, our 1.6 million square foot business complex, is particularly well positioned to capitalize on the surge of activity. The multi-million dollar repositioning of the portfolio has been and will continue to be a catalyst for continued leasing activity in the east. The upgraded amenities, technology and infrastructure coincide with tenants' rising demand for high quality space and services. Equally important, we have seen strong renewals and expansion--one of the outstanding trends in the Westchester market.

Another strong trend we are seeing is relocations from outside of the submarket itself. For example, earlier this year, we leased 20,000 square feet to Bank of New York's elite private banking group when it relocated from the White Plains Central Business District. We've leased 30,000 square feet to Malibu Kahlua International, which relocated from Fairfield County. Leading PC manufacturer, Lenovo, also relocated to Platinum Mile. Additionally, we now have a handful of smaller, former NYC-based financial service companies whose principals want to work closer to their homes.

In our experience, we are finding tenants are attracted not only to the unparalleled location of Platinum Mile, but also to the strength of ownership that a landlord's reputation conveys.

In the year to come, the Westchester market can expect leasing activity to continue at its current healthy pace. We expect a settling of space returns to the market, continued firming and upward pressure on rental rates, and a decline in the vacancy rate as the year progresses.

Commercial real estate in Westchester County is poised for a very healthy, upbeat 2007.

By Joe Caruso, senior vice president, leasing, RexCorp Realty