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Resurgent downtown White Plains fuels the Westchester County office market.

After years of struggling with the after effects of numerous corporate downsizings, the Westchester commercial office market has finally entered a period of recovery, according to the Insignia/ESG Third Quarter Commercial Market Report.

Over the past several years, while neighboring Fairfield County, Manhattan and New Jersey saw ever-tightening conditions, Westchester County was busy coping with high levels of availability. However, following three straight quarters of positive absorption in 1999 - to the tune of more than 901,000 square feet of space - the county's availability rate has fallen to 16.1 percent. Quite a turnaround from the third quarter of a year ago, when Westchester was dealing with nearly 700,000 square feet of negative absorption following new availabilities at a number of buildings - new availabilities that would continue to grow and eventually lead to an availability rate of more than 18 percent by the end of 1998.

Consistent with the upbeat theme in the county's activity, four out of the five market segments finished the third quarter of 1999 with positive absorption. Only Westchester South came out negative, due primarily to 125,000 square feet of new availability at an office building under construction at New Roc City in New Rochelle. Dean J. Shapiro, executive director of Insignia/ESG's Westchester-Connecticut office, however, sees this availability as a signal that the market is truly rebounding. "Speculative construction does not usually occur in slow markets," said Shapiro, also pointing to a number of recent acquisitions in Westchester, including 10 Bank Street in White Plains, 900 King Street in Rye Brook, and the Mt. Pleasant Executive Center in Mt. Pleasant, by major tri-state market players, as other encouraging signs for the county. "Investors see value in Westchester's market, and are positioning themselves to take advantage of even more activity to come."

Steady, strong leasing activity in the county had much to do with the reduction of available space this year. In fact, Westchester saw approximately 566,990 square feet of leasing in the third quarter alone - a 26 percent increase over the same period a year ago. So far this year, a total of 1.8 million square feet has been leased throughout the county.

Space users requiring 10,000 square feet or less continue to dominate leasing activity in Westchester, accounting for about 87 percent of all transactions in the third quarter and 84 percent over the course of the year. Interestingly, the most velocity in the county took place in an unexpected location - the White Plains CBD - which saw leasing 44 percent higher in the third quarter of this year compared to the same period a year ago.

Transactions that contributed to these results included Starwood Hotels & Resorts Worldwide's 84,550 square-foot lease at 44 South Broadway and WorldSpy's 28,180 square feet at 120B Bloomingdale Road. Year-to-date, 550,730 square feet has been leased in the CBD, 71 percent more than the first nine months of 1998.

"Downtown White Plains has made significant progress this year," Shapiro said. "Conditions are tightening, especially for small to medium sized users. Rental rates are beginning to escalate, with some prime spaces commanding rents as high as $29 per square-foot. Although White Plains has only 19 percent of the total office space in Westchester, it has accounted for 30 percent of the total leasing and 34 percent of total absorption so far this year."

The CBD's absorption totals as of the end of the third quarter are also an interesting development for a market that has struggled for years with corporate downsizings and the resulting plethora of unoccupied space. So far this year, almost 306,000 square feet of space has been absorbed downtown, translating into a reduction in total available space of 21 percent from the end of the third quarter of last year. The White Plains CBD's availability rate, consequently, fell nearly six percentage points from last September to 24.9 percent. And, while this rate is still the highest in the county, it is far lower than a year ago.

Foreseen by Shapiro as aiding the continued improvement of the White Plains' office market is the ongoing major renovation of 445 Hamilton Avenue, 360 Hamilton Avenue and 120 Bloomingdale Road, properties containing the city's largest amounts of available space. "The capital invested in these properties to prepare them for multi-tenant use will pay major dividends in the future, especially as the market continues to focus more and more on smaller tenants," he said. "In fact, these buildings will soon be some of the most desirable addresses in the CBD with their state-of-the-art systems and capabilities."

The third quarter of 1999 saw the following results in Westchester's four other submarkets:

Westchester County East

Despite the return of major blocks of space to the market by Nine West Group, Texaco and IBM, the Westchester East segment emerged as the second most active submarket in the county in the third quarter of 1999. Nearly 101,000 square feet was leased in the segment during that time, bringing the East's total velocity year-to-date to 420,880 square feet. This level amounts to 23 percent of the total leasing in the county so far in 1999. Activity at 1311 Mamaroneck Avenue, among other properties, contributed to this result. With absorption totaling just 99,120 square feet for the year, however, the segment's availability rate dropped less than one percentage point compared to September of 1998. It now stands at 16.7 percent, the second highest in the county behind the White Plains CBD.

The largest transaction completed in the submarket during the third quarter was REGUS Business Center Corporation's 15,225 square-foot sublease at 100 Manhattanville Road in Purchase. The average asking rent in the East fell 25 cents over the past year to $25.35 per square foot.

Westchester County West

The western segment finished the third quarter of 1999 with modest results: 64,580 square feet leased and 21,140 square feet absorbed. However, fewer returns of large blocks of space to the segment's unoccupied supply and the resulting 66,450 square feet of positive absorption so far this year caused its availability rate to fall nearly two percentage points from September 1998 to 12.9 percent. Last year at this time, absorption in the West was a negative 135,070 square feet. Year-to-date leasing of 365,980 square feet was down slightly from the velocity of the first nine months of last year, and the submarket did not see a transaction larger then 10,000 square feet completed in the third quarter. In fact, the average size transaction in the West measured 3,399 square feet, a number far lower than the county's average of 6,914 square feet. Average asking rent in the West rose $1.08 per square-foot since September of last year to $22 per square foot.

Westchester County North

The Westchester North segment, hard hit by the continuing presence of 383,000 square feet of available space at the Mount Pleasant Executive Center, saw its availability rate rise more than five percentage points from the third quarter of 1998 to 11.6 percent. This rate, however, is quite deceiving, as 1999 has actually been a year of progress for the North. In fact, due to year-to-date leasing activity 3 percent higher than the first nine months of last year and absorption 63 percent higher, the North's availability rate has actually dropped from 12.2 percent in the first quarter of this year. The segment still has the lowest availability in Westchester and accounted for nearly 37 percent of all the space absorbed so far this year.

Major transactions for the third quarter included Towers Perrin's 88,950 square feet at 100 Summit Lake Drive in Valhalla and Con Edison's 31,000 square feet at One Park Place in Peekskill. The average asking rent in the North has risen $2 per square foot in the past year to $23.64 per square foot.

Westchester South

Although Westchester's smallest submarket saw 95,760 square feet of negative absorption in the third quarter of this year, most of the space that became available is located in a speculative building currently under construction at New Roc City in New Rochelle. The development of this building, without any preleasing, is considered a positive development because it expresses confidence in the South's future. The segment's availability rate, nevertheless, was negatively affected by this new construction, rising slightly from 13.3 percent a year ago to 13.6 percent. Absorption for the year, however, remained positive due to leasing activity almost three times higher than in the first nine months of last year. The average asking rent in the South, due to the new construction at New Roc, saw an increase over last year of $2 per square-foot. The current $19.41 per square foot total, however, is still the lowest in the county.

The Insignia/ESG report surveyed 287 multi-tenant Class A and B buildings in Westchester County. Government-owned and occupied buildings, medical office buildings and buildings under 20,000 square feet were excluded.
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Article Details
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Publication:Real Estate Weekly
Geographic Code:1U2NY
Date:Nov 24, 1999
Previous Article:New York forecast predicts strength beyond the millennium.
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