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Suburban office vacancy lowest since mid-80's.

Increases in leasing activity and the virtual stop of new construction has caused the overall suburban commercial vacancy rate to drop to its lowest level in several years. Continued corporate downsizing, however, still hampers progress in a some local markets.

According to a fourth quarter 1992 report released by Cushman & Wakefield, the national suburban vacancy rate has dropped from 20.7 percent at the end of the third quarter of 1992 to 20.4 percent at the end of 1992. The vacancy rate has dropped a full point since the first quarter of 1991 (21.4 percent) and more than two points from its "historic" high in the third quarter of 1986 (23.0 percent).

The Cushman & Wakefield summary also states that a total of 9.4 million square feet of new construction were introduced into the suburban market in 1992. This is a considerable drop from the 20.3 million square feet delivered to these markets in 1991, and the high of 103.8 million square feet of new space that came on line in 1986.

A CB Commercial survey shows vacancy rates were last in the neighborhood of 20 percent in 1984, according to the Wall Street Journal.

Arthur J. Mirante, president and chief executive officer of Cushman & Wakefield, in a statement, said "more attractive rental rates, better quality of life, lower taxes and less infrastructure problems" have helped to maintain steady demand in the suburbs.

Nonetheless, suburban vacancy rates, however, are far from normal and in some markets in the tri-state region saw the fourth quarter vacancy rates were up over the third quarter of 1992 and the fourth quarter of 1991.

According to the Cushman & Wakefield report in Fairfield County, vacancy is somewhat stable. The fourth quarter 1992 vacancy rate was 24.6 percent compared to 24.5 percent in the third quarter and 24.2 percent in the fourth quarter of last year.

In Westchester, the fourth quarter vacancy rate of 17.1 percent was up slightly from 17.0 percent in the third quarter but up two percentage points from the fourth quarter of 1991.

In Norther New Jersey, the fourth quarter vacancy rate was 25.3 percent down from the third quarter rate of 25.9 percent but up from the 1991 fourth quarter figure of 24.5 percent.

In Central, New Jersey, the fourth quarter rate of 20.4 percent rose a bit from 20.0 percent in the third quarter of last yearr, but this is more than a four-point jump from 16.1 percent.

Fairfield and Westchester

"Though the activity has not been 80's-type of expansion, I think the worst is over," said Terry Brown, Westchester and Fairfield branch manager for Cushman & Wakefield.

But, while Fairfield County experienced positive net absorption in 1992, Brown said, Westchester had a negative absorption.

Westchester's strides in leasing in 1992, Brown said, were dampened by consolidations by a number of the county's largest tenansts, including: IBM, Prodigy, NYNEX, AT&T, and Nestle. In addition, he said, Dollar Dry Dock and American Savings Bank.

"We just have job loss," he said. "Consolidations usually mean job loss."

Fairfield, on the other hand, he said. has not seen the corporate attrition and there were a number of leases in 1992.

"The state of Connecticut has been very, very aggressive in keeping companies in the state," he said. "They've been very aggressive."

Unlike Westchester, Brown said, Fairfield is reaping the benefits of the hiatus in construction.

"What we're seeing is net absorption because we have no new supply," he said.

According to John Rostenberg, principal, Rostenberg-Doern, people tend to think of Westchester and Fairfield as one market but they are proving they are quite distinct.

According to Rostenberg Doern year-end figures, The Fairfield County office market reported a net gain of more than half a million square feet of office space in 1992. Meanwhile, Westchester County finished the year with more tan 568,000 square feet of space vacated than leased.

Michael Siegel, who heads Westchester leasing for Edward S. Gordon, said "Fairfield is definitely further along in recovery."

But, Westchester, he said, was healthier longer.

Nonetheless, with no new construction and leasing on the rise in both counties, Siegel said, what is developins is "more of a stable situation."

New Jersey

In suburban Northern and Central New Jersey, said Don Eisen, New Jersey branch manager for Cushman & Wakefield, there is indeed increased leasing activity as office tenants take advantage of the current market and move to newer, higher quality space. Many of these companies, however, are leaving wholes in older "B" and "C" buildings.

"I think the overwhelming fact is that vacancy is going down in our |A' category, what we consider our better buildings," he said.

Coupled with the lack of building, Eisen said, demand will somewhere down the road return to a normal level.

But jobs equal space, Eisen said, and with companies downsizing there is little growth in employment in New Jersey.

"That continues to go on and everybody is trying to figure out how skinny they can operate and still be around," he said.
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Title Annotation:fourth quarter 1992; suburbs of Greater New York area including Fairfield County, Connecticut, New Jersey and Westchester County, New York
Author:Fitzgerald, Therese
Publication:Real Estate Weekly
Date:Mar 3, 1993
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