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Westchester improves, despite oversupply of large blocks.

Despite a continuing overhang of large blocks of available office space, steady leasing activity and modest positive absorption combined to produce encouraging results for the Westchester County office market in the first quarter of 1999, according to the Insignia/ESG First Quarter Commercial Market Report.

First-quarter leasing activity of almost 612,000 square feet - though down 9 percent from a year ago - was still higher than the county's average quarterly leasing activity over the past two years. A decline in the number of large blocks of space returning to the market; an unusually high number of transactions measuring more than 20,000 square feet each; and the continuing strength of smaller transactions contributed to nearly 45,000 square feet of positive absorption in the county during the quarter - an outcome considerably lower than the 337,000 square feet absorbed in the standout first quarter of 1998, but an improvement over nearly 400,000 square feet of negative absorption registered in the last months of 1998.

The county-wide availability rate at the end of the first-quarter totaled 17.9 percent, up more than two percentage points from the same time last year. but down slightly from 18 percent at the end of 1998. Three of Westchester's five market segments - the White Plains CBD and Westchester North and South - posted positive absorption for the quarter due to leasing transactions by companies including the Westchester Arts Council, Novas Marketing and the Bankers Board of Education.

Four of the five segments, however, finished the quarter with availability rates higher than recorded at the same time last year. Downtown White Plains had the county's highest availability at 30 percent, as blocks of space measuring 100,000 square feet or greater continue to make up almost half of the city's availability. Westchester North had the lowest availability at 12.2 percent.

Although eight transactions larger than 20,000 square feet were completed during the quarter, smaller size deals continued to account for the majority of the county's leasing activity. In fact, more than 62 percent of the total space leased in the first quarter of 1999 was in blocks of space totaling 20,000 square feet or less. Additionally, of the 94 transactions completed during the quarter, 66 percent involved blocks measuring 5,000 square feet or less.

While opportunities in these small size ranges have not yet fallen below the supply/demand equilibrium mark, continued leasing velocity of recent levels almost guarantees a limited supply of smaller space in the future.

This growing imbalance between supply and demand is particularly evident in downtown White Plains. In 1998, approximately 74 percent of the total available space in the city resided in blocks of 50,000 square feet or more, while 71 percent of the transactions were for 20,000 square feet or less. At the end of the first quarter of this year, 83 percent of available space totals 50,000 square feet or more, while 73 percent of the city's transactions measured less than 20,000 square feet.

"Despite its high availability rate, White Plains is a very active office market, especially for smaller tenants. In fact, it led the county in leasing activity in the first quarter of this year," said Dean Shapiro, executive director of Insignia/ESG's Westchester-Connecticut office. "High quality, well-located buildings continue to garner the most interest, especially if they have flexible floorplates. For example, Gateway, 50 Main Street, 123 Main Street and Ten Bank Street have all done exceedingly well by accommodating tenants with various space requirements. In addition, these buildings provide easy access to Manhattan via the nearby White Plains train station."

Rental rates continued to edge higher in the first quarter, as the addition of newly available Class A space to the inventory unduly influenced the county-wide averages. The average asking rental rate at the end of March was $23.67 per square foot, an increase of $2.13 per square foot from the first quarter of 1998. Without the addition of new, highly-priced space at 360 Hamilton Avenue, 2000 Westchester Avenue and others, the county's overall asking rent rose to $23.24 per square foot over the past year.

The Westchester North submarket experienced the most significant change in its asking rent, as its average rose $3.61 per square foot from last year to $23.50 per square foot following the return of the IBM Building in Mount Pleasant to the segment's availability. In contrast, the southern segment's asking rent increased by just 38 cents per square foot over the past year to $16.57 per square foot.

The largest transaction of the quarter was the Westchester Arts Council's acquisition for occupancy of a 47,080 square-foot office building at 31 Mamaroneck Avenue in White Plains. Other major lease transactions included Xerox's 33,660 square-foot lease at 580 White Plains Road in Tarrytown; Client Soft's 31,000 square feet at 8 Skyline Drive in Hawthorne; and MovieFone's 30,000 square feet at 333 Westchester Avenue in White Plains. MovieFone will move its headquarters from Manhattan to the former General Foods building, which is currently undergoing renovation in preparation for multi-tenant use.

Companies returning space to the market in the first quarter of 1999 included Nine West Group, (29,237 square feet at 1109 Westchester Avenue in White Plains); Lieber Evergreen Fund (41,809 square feet at 2500 Westchester Avenue in Purchase): and Bell Atlantic (40,000 square feet vacated at 222 Bloomingdale Road in White Plains).

Westchester County Central Business District

More than 175,000 square feet of space was leased in Downtown White Plains in the first quarter of 1999 - a 29 percent increase in activity from the first three months of 1998. This strong performance enabled the submarket to end the quarter with 26,500 square feet of positive absorption. The city's 30 percent availability rate remained relatively unchanged from the end of last year, however, as 1998's year-end corporate downsizings continue to influence current statistics.

The trend toward renovation of existing vacant buildings in Downtown has also had an effect on the city's average asking rent. As these buildings are upgraded, their rental values increase, elevating the overall average. In fact, since March of 1998, the city's asking rents rose $1.07 per square foot to $23.50 per square foot.

Westchester County East

Westchester's largest market segment saw negative absorption of 16,500 square feet in the first quarter following the return of large amounts of space at 1109 Westchester Avenue in White Plains, 2500 Westchester Avenue in Purchase, and 555 Theodore Fremd Avenue in Rye, among others. In contrast, Westchester East experienced nearly 300,000 square feet of positive absorption in the first three months of 1998. First quarter 1999 leasing totaled almost 158,000 square feet, less than half of the 348,000 square feet leased in the first quarter of last year. As a result, the district's availability rate rose 1.7 percentage points from the same period a year ago to 17.9 percent. The segment's asking rent increased $2.81 per square foot over the past year to total $25.40 per square foot.

Westchester County West

Approximately 135,000 square feet was leased in the first quarter in the western submarket - a 60 percent increase in activity from the same period of 1998. However, space returned to the available supply in this segment, such as Ferring Pharmaceuticals' 20,000 square-foot sublease space at 120 White Plains Road in Tarrytown, caused almost 11,500 square feet of negative absorption this quarter and a rise in the availability rate of nearly two percentage points from a year ago. Asking rent in the West rose by $1.90 per square foot over the past year to $22.77 per square foot.

Westchester County North

Despite leasing activity 32 percent above last year's first quarter total. Westchester North's availability rate rose more than four points from 1998 to 12.2 percent. This rise can primarily be attributed to the return of a number of large blocks of space to the market at the end of last year. The segment's current availability rate, however, is still the lowest in the county. First-quarter absorption for the North totaled just more than 10,000 square feet, while average asking rent rose $3.61 per square foot in the past year to $23.50 per square foot.

Westchester County South

In the first three months of 1999, the Westchester South market segment began to see benefits from the ongoing revitalization of its urban areas, particularly Yonkers and New Rochelle. The county's smallest office market ended the first quarter with the most absorption in the county and leasing activity 60 percent higher than a year ago. As a result, its availability rate at the end of the quarter was 12.5 percent, down from 13.1 percent in March of 1998. As Yonkers moves ahead with its waterfront development plan and New Rochelle furthers several major projects currently underway, including New Roc City and its 110,000 square-foot office tower, this upbeat activity should continue.

The Insignia/ESG First Quarter Commercial Market Report surveyed 286 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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Publication:Real Estate Weekly
Article Type:Industry Overview
Date:Apr 21, 1999
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