Larger tenants drive the market in second quarter of 04.
The extent of that drag was considerably reduced by the second quarter's strong outcome. Leasing activity 88% higher than in the first quarter combined with few space returns to produce almost 230,180 s/f of positive absorption. This, in turn, cut year-to-date absorption to negative 309,400 s/f--half of its first quarter level. Available space decreased 4% from the first to the second quarter and remained basically stable compared to June of last year at 4.5 million s/f, as did the availability rate at 13.9.
Dean Shapiro, senior managing director of CB Richard Ellis' Westchester/Fairfield office, argues that a rapid reversal of the first quarter's discouraging outcome was predictable, given the fundamental change in the nature of the Westchester office market.
"Westchester has evolved into one of the most desirable and necessary business locations in the New York tri-state region, resulting in consistently strong leasing and lower availability," he said. "It is no longer dominated by large blocks of hard-to-lease space. In fact, in just the last year, space available in blocks of 50,000 s/f to 100,000 s/f dropped another 31% and in units of 100,000 s/f to 250,000 s/f by 35%--a significant and exciting development, given the smaller size of most tenants. These parallels between user-requirements and market availabilities, when added to the diversity of the tenant population, ensure that space will be absorbed and the market will move forward regardless of the actions of one company, or, as we saw during the recent downturn, the state of the economy."
Before progressing, however, the county had to overcome the factors that caused it to stray off course in the first quarter--specifically, demand had to pick up, especially from tenants with large space requirements, and the White Plains CBD had to reclaim the county driver's seat. The second quarter saw some positive activity in that respect. The CBD, where demand seemed to take a breather in the first quarter, saw things pick up with a bang--leasing, driven by aggressive deals at 44 South Broadway and 445 Hamilton Ave., grew 475% from the first quarter to 298,030 s/f. Year-to-date, the city's velocity, at 349,850 s/f, exceeded the first six months of 2003 by 44%.
The CBD, however, was not the only market to see an increase in activity from the first to the second quarter--a total of four of Westchester's five sub-markets experienced more tenant commitments than in the previous three months, leading to a countywide jump in velocity of 88%. For the whole six months, though, the sluggishness of the first quarter still remained evident--only one sub-market other than the CBD saw leasing grow from the same period of 2003, resulting in a 13% drop in velocity from last year countywide to 1.1 million s/f.
Deals completed in the first quarter tended to be smaller as tenants chose to act conservatively in new spending. That attitude appeared to moderate in the second quarter as companies expanded with more confidence. In fact, the average transaction grew 48% in size from the first to the second quarter.
Though Westchester seemed able to overcome most of the difficulties that led to the performance of the first quarter, one major issue remained as of the end of June--the falloff in relocations. After contributing heavily to the CBD and the entire county's evolution of the past few years, relocations seriously declined in the first half of 2004. Altogether, movement into Westchester plummeted 65% from last year to just 190,200 s/f--an indication that the post-9/11 trend toward operation decentralization and redundancy may be over. And while the rejuvenated leasing activity seems to demonstrate that local companies can fill the hole left from fewer relocations, new blood may actually be more critical to the stability of the county's office market. Neighboring Fairfield county, for example, where relocations have become an unusual event, continues to struggle to achieve even a measure of its pre-downturn prosperity.
For most markets, 9/11 and the ensuing economic downturn produced corporate downsizings and financial cost-cutting on a massive scale. Westchester county certainly saw its share of these troubles, but as the second quarter of 2004 demonstrated, it seems to have found ways to avoid slipping back in--even when faced with Altria's decision to relocate or a 131,180 s/f downsizing by Transamerica at 100 Manhattanville Road in Purchase. Renewed demand from tenants combined with a majority of returns no larger than 17,500 s/f to produce 230,180 s/f of positive absorption in the second quarter. As a result, the first quarter's 539,570 s/f of negative absorption was cut in half and year-to-date absorption elevated to negative 309,400 s/f.
While four of five submarkets saw positive absorption both in the second quarter and year-to-date, most of the county's improvement came about as a result of happenings in the White Plains CBD. Leasing 44% above the first six months of last year, paired with virtually no space returns, led to 213,640 s/f of positive absorption and availability 32% below June of 2003 at 897,450 s/f.
The availability rate, similarly, fell almost seven percentage points from last year to 14.7%--its lowest level ever. And more significantly, at least for a city once plagued by an availability rate exceeding 30%, opportunities for large users have dwindled to almost nil.
Even buildings slower to take advantage of the strong demand of the past few years finally saw activity in the second quarter. 445 Hamilton Ave., for example, experienced 105,520 s/f of leasing this year, including the relocation of Lillian Vernon's 52,710 s/f headquarters. However, some trophy properties have seen their vacancies grow as bargain hunting tenants reject more expensive, top quality space in favor of better deals.
These new availabilities are manageably sized--as are most new returns countywide. In total, space housed in blocks greater than 50,000 s/f remained at 44% of the county's total available space. Sans the 780-800 Westchester Ave. block, offerings of that size fall to just 30% of Westchester's vacancy or 1.4 million s/f.
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|Publication:||Real Estate Weekly|
|Date:||Sep 1, 2004|
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