The Q1 leasing report is in, and we are definitely not your old Westchester office market anymore.
On New Year’s Day 2026 our office market statistics finally caught up with our office market reality. After probably a decade of artificially inflating the Northern Submarket vacancy statistics, the 1.1 million square foot totally vacant former IBM facility was removed from the market statistics. And the 660,000 square foot site containing the “700 series” of 1970’s era office buildings fronting on Route 287 in White Plains was also removed after it was purchased by a group intending to repurpose the site as a mixed-use development.
So about 1.8 million square (that would never be leased as office space again) came off our approximately 25 million square feet of total inventory. That is a reduction of almost 6% of the county’s office inventory in one fell swoop. Our vacancy rate is now 19.9%, down from a recent peak of 27%. And that 19.9% is on a much smaller inventory than in the recent past, so represents many fewer square feet actually available.
When I came into the real estate business in Westchester County in 1986 (when most of our office buildings were about 10 years old), the multi-tenant market was considered to be about 33 million square feet. In the last 40 years, demolition and repurposing of obsolete buildings and sites has now reduced the top line by 10 million square feet or about 30 per cent.
The last new building (10 Bank St. in downtown White Plains) was completed in 1989. So, our newest office building today is 37 years old! Just about every news article in Westchester when I joined the business was about the office market, which had just finished a 12 year development boom. Today, it is about the multi-family market, which has thousands of new apartments but still cannot significantly reduce the housing shortage in the county.
Office rents are rising. We have a “have and have not” inventory. There are a limited number of larger, highly amenitized buildings that have done extensive renovations and are attracting many of the tenants that want a “flight to quality.”
The popularity of the larger buildings allows their owners to keep them up to today’s standards. The lobbies are gleaming marble with flat screen TV’s, cafeterias with lots of stations offering a large and varied selection of food, drinks and snacks. Their fitness centers with lockers and showers have new equipment that look like they should in 2026.
The largest segment of the remaining inventory is the oldest group of buildings that have not been renovated, whose lobbies, bathrooms and public corridors are old, tired and unattractive. Their cafeterias and fitness centers (if they even have them) are similarly dated and out of step with what people want today.
Our Class A rents (anyone else’s Class B) have risen statistically over 6% this year, to $30.81 per square foot, according to the Newmark Q1 report. And Westchester Class B rents are up 5% year over year.
The office market is not dead, and every landlord is not desperate to make every lease deal. It is much tighter than it has been in decades.
Many buildings cannot afford the costs of tenant fit outs that are needed to attract new tenants.
Even basic buildouts cost around $80 per square foot, and upscale buildouts can easily exceed $100 per square foot. That means landlords are paying over 3 years of gross rent (including high costs of operating the building and paying real estate taxes) just to deliver the space to the tenant. On top of that is their legal fees and broker commissions. So, reality is that 3 to 3 ½ years of gross rent are paid out by the landlord before the tenant even takes occupancy of the space. In addition, interest rates continue to be high, and operating expenses (especially energy and insurance for these buildings with single pane windows and antiquated HVAC systems) continue to rise, negatively impacting office owners bottom line.
Renewals are the key driver of demand. I have done space searches recently for my clients where we had very few alternatives. When you have the option to renew, it is often the path of least resistance (and capital cost). If you cannot renew (space or location no longer works or landlord cannot afford to upgrade or reconfigure space) tenants do not have the leverage they once had in the market.
Tenants always want renewal options, but they are actually meaningless in our market. There is always a “floor” under those options of the tenant’s current escalated rent (including additional rent paid for increase in operating costs and real estate taxes). With multiple years of rent increases and operating and tax escalations, tenants are generally paying above market rent and would continue to do so if they exercised their renewal options.
I always create an arm’s length negotiation well prior to the exercise date of the option, to get the tenant’s rent down to current market and to make sure that we have enough time to investigate the market for more advantageous terms before we lock in.
The only office buildings being built today are for owner-users. Regeneron continues to build out approximately 900,000 square feet of laboratory, office and manufacturing space on the 100 acres it purchased a number of years ago in Tarrytown.
And the New York Power Authority is building a new 310,000 square foot headquarters which it will own in downtown White Plains. It is being constructed on a site previously approved for an apartment building.
Any other building you see under construction is a rental apartment building. I have significant doubts that any new speculative office product will be built again in Westchester. Today’s construction costs and the high quality standards (sustainability, energy efficiency, technology) that companies expect today would probably require rents of twice as much per square foot or more than space is renting for in our existing inventory for their developers to make a profit. And no financial institution would lend the money to construct a new building unless it had a major anchor tenant or was fully pre-leased, which presents a very high bar.
Today’s real estate market is all about multi-family development and repurposing of obsolete office buildings and sites to higher and better uses. We have never had any significant inbound tenants (coming from New York City or other markets around the country) and that continues to be the case.
So, we continue to “rearrange the deck chairs” of our shrinking office market as tenants are now adapting to today’s reality of hybrid work and how their space is used in the real world. It is an interesting market, with a lot of nuances. Tenants need experienced and knowledgeable representation to navigate it to their advantage.