Westchester office market stays stable in '06.

The Westchester County office market remained stable during the first half of 2006, with pending leases and other market factors placing the market on the verge of upward momentum for the remainder of the year, according to a mid-year report releases by commercial real estate services firm Cushman & Wakefield.

The addition of approximately 500,000 s/f at 1133 Westchester Ave., located in the White Plains non-Central Business District (non-CBD), to the office market inventory skewed figures in the second quarter with the result of negative overall absorption of 291,706 s/f. Without the addition of this added Class-A space, absorption would have ended with positive 257,625 s/f.

The 1133 Westchester Ave. space also inflated direct and overall vacancy rates by 1.7 and 1.6 percentage points, respectively, bringing totals to 13.4% and 15.4%, instead of the 11.7% direct vacancy and 13.8% overall vacancy levels that more accurately reflect market conditions. Other space returns in the second quarter included Mysis International's 45,000-s/f direct space at 525 North Broadway in the White Plains CBD; AOL Movie Phone's 30,000-sf sublet at 333 Westchester Avenue and Encore Credit's 21,000-sf sublease space at 925 Westchester Avenue, both located in White Plains Non-CBD.

"Projections for increased leasing activity for the remainder of the year will cause vacancy rates to drop and rents to rise," said Jim Fagan, senior managing director and head of Cushman & Wakefield's Westchester County, Fairfield County and Long Island offices. "Office market indicators show the advantage has swung in favor of property owners, providing the opportunity to end the 'sale' on rents and curb generous concessions used to attract tenants."

Although leasing activity decreased by 25% in the second quarter, the year-to-date (YTD) aggregate paints a better picture, with leasing velocity reaching above 920,000 s/f YTD, compared with 847,316 s/f during the first half of 2005. Lease transaction sizes, however, remained virtually identical in comparison with 2005, averaging from 6,600 s/f to 6,700 s/f between mid-year 2005 and mid-year 2006.

Leasing activity cooled off compared to a flurry of activity at this time last year in the Eastern submarket, which saw companies, such as BridgeCom International, Altria Group, Lenovo Group, and Greywolf Capital Management, commit to more than 20,000 sf each. The Eastern submarket experienced the biggest drop in County leasing activity, although the largest transaction of the quarter, Westchester Medical Group's 65,000-s/f lease at 1 Theall Road in Rye, occurred there.

Investment sales activity totaled 1.1 msf at mid year. This included the largest single asset disposition in county history: the $181 million sale of Westchester One, a 23-story, 850,198-s/f office building located in downtown White Plains. The sale commanded $213 psf.

"There remains continued interest in Westchester County's capital markets, proving that well-located, quality assets continue to draw significant investment activity," said Fagan. "The owners of Westchester One were in an excellent position to capitalize on a strong investment sales market by selling their long-time family-owned office building for a record price."

The forecast for the remainder of the year is positive, due to the county's historic ability to recover promptly, coupled with other influencers. First, several 100,000+-sf tenants are currently in the market for space, a factor that contributes to the promising outlook. The newly available space at 1133 Westchester Avenue will likely result in a lease signed by one or more of the companies seeking large blocks of space. In addition, Reckson Associate's multi-million dollar transformation of the 14-building, 1.6 million s/f (msf) former Eastridge portfolio, is expected to enhance one of county's most viable corridors and offer an ideal alternative for tenants seeking quality space. The tightening Manhattan office market is also likely to lead tenants to consider space in suburban markets, with Westchester as a desirable alternative.