2013: The Westchester Year in Review: It's Not Just About The Vacancy Rate - howprop.com websites

2013: The Westchester Year in Review: It’s Not Just About The Vacancy Rate

01 Jan2014

2013: The Westchester Year in Review: It’s Not Just About The Vacancy Rate

By: Howard E. Greenberg, SIOR
Howard Properties, Ltd.

Reprinted from the Westchester Business Journal

There were a small, but very significant, group of real estate transactions in the Westchester County market in 2013 that had literally no effect on our office vacancy rate. But they will add thousands of construction jobs and permanent jobs, and they reinforce the continuing trends of repurposing of existing buildings, and the explosive growth of medical and biotech in the county.

These transactions were: the 250,000 SF office building at 19 Skyline Drive in Hawthorne, vacated by IBM and immediately sold by Mack-Cali to NY Medical College; Montefiore’s purchase of the 300,000 SF Kraft research campus in Tarrytown; Regeneron’s 300,000 SF build to suit laboratory expansion at Landmark at Eastview and WestMed’s 85,000 SF build to suit at Harrison Executive Park. Collectively, they involved almost one million SF of office, laboratory, and medical space.

These were the key deals of 2013, and they did not “move the needle” at all on the office vacancy rate. But if 19 Skyline and the Kraft campus had come to market as 550,000 SF of newly vacant office space, there would have been a significant increase in the vacancy rate. More than that, these properties would have required huge capital investments for renovations and they would have taken many years to lease up, if they could have been leased at all.

We continue to see only a trickle of new tenants coming into Westchester from other areas. Large companies continue to downsize their headcount and square footage leased per person. Some (smaller, primarily privately held) tenants are growing. Even though White Plains is only 38 minutes from midtown Manhattan by train, Westchester has not attracted any statistically significant relocations from the Big Apple in recent years. Repurposing of buildings and land continues, and is actually accelerating. This trend toward recycling obsolete and underutilized buildings and rezoning land to permit more popular uses is our best hope for re-balancing the market. The ultimate goal is to achieve equilibrium, which is the point at which the supply of space and the demand for space are approximately equal. For far too long, our supply has far outstripped our demand in Westchester.

A number of office building owners and leasing representatives I spoke to said they had a good leasing year, notwithstanding the fact that annual deal velocity continues in the 1M plus SF range, rather than the close to 2M SF range annually prior to the recession. These days, tenant retention is critical in Westchester, and tenants do not make that easy. They drive hard bargains, but building owners know that the cost of losing them and sitting with vacant space is too high.

Medical continues to be THE growth engine. Indeed, the first new office building to be developed since the late 1980’s will be a pre-leased 85,000 SF medical office building for WestMed at Harrison Executive Park along Route 287 in Purchase. Montefiore Hospital closed on its purchase of the 300,000 SF former Kraft campus in Tarrytown, and is still signing new leases for significant amounts administrative space in multiple submarkets. Scarsdale Medical Group has planted its flag at Saxon Woods Corporate Center and continues its strong growth as well. The Platinum Mile is really becoming the Medical Mile, representing a huge repositioning of the 287 East submarket.

MasterCard just announced an expansion of the building it owns in Purchase, as well as an expansion of its leased space at 100 Manhattanville Rd., potentially adding about 270 jobs. Add that to Pepsico’s major reconstruction of its Purchase HQ and its now 270,000 SF lease (to house its employees during the multi-year project) at 1111/1129 Westchester Ave., and it tells us that corporate america is not yet dead in Westchester. But IBM has put a large blocks of space up for lease on its campus in Somers, continuing its multi-decade reduction in space. MBIA reportedly has a deal to sell its campus in New Castle, and is shopping the county for about 100,000 SF of space to lease.

The West Side submarket is very tight, with Tappan Zee Constructors taking almost 31,000 SF at 555 White Plains Rd. earlier this year, and some smaller leases for other companies involved in the building of the new Tappan Zee Bridge.

Generally, activity in the Central Business District of White Plains has been slow in 2013, and there are a number of significant subleases on the market. Disney consolidated its operations back California and put 71,000 SF on the market at Westchester One. Pearson Education is decamping for NYC and has 42,000 SF for sublease at 10 Bank St. MindSpark left for Yonkers, giving a full floor (33,000 SF) back to 1 No. Lexington.

The star building of the White Plains CBD is Westchester One, which signed almost 80,000 SF of leases with New York State government entities, and 44,713 SF with Jackson Lewis, in a lateral relocation (i.e. no net absorption) of its attorneys group from One No. Bway a few blocks away. Even though Reader’s Digest downsized (leaving the very desirable top two floors vacant), it extended its lease for more than 50,000 SF. All in all, Westchester One achieved the best CBD leasing success in 2013.

In summary, there were no major catastrophes, and there were some significant gains in the Westchester County market in 2013. Medical and biotech continue to grow. Building owners continue to focus hard on working their properties to achieve maximum tenant retention and occupancy. Large buildings that are either functionally obsolete or require major capital infusions are candidates for sale or repurposing. Thank goodness for medical, the “great white hope” for Westchester.