We are now in the third year of the pandemic, and its effects are clearly being seen in the county’s office space market. In 2021 we had a “normal” year (about 2 million square feet of office leasing velocity), which was only attained after the New York Blood Center made a late December deal for 168,000 square feet at the former Avon data center in Rye. While not a traditional office deal (it also included significant space for blood storage and laboratory space), it was recorded as an office deal and got us to just about the average leasing mark.
This year (through June 30) leasing is 25% lower than last year at this time, with negative absorption at about 242,000 square feet, according to Newmark’s statistics. The number of lease deals has shrunk by about half, from 110 deals last year to 59 this year. Availability has increased to 25.8% versus 25% last year at this time.
Returns to office continue to be inconsistent, and it is clear that hybrid work (in the office 2-3 days per week and remote the rest) is clearly here to stay. Leases expire when they expire, so there is no clear pattern that shows up at any given time, but many businesses and professional firms are re-thinking how they will use their office space (and how much they will need) going forward. Any company that is looking to shrink its space will most likely have to wait until its lease ends, as buildings owners are reluctant to reduce their rental income unless they absolutely have to.
National tracking through security card swipes is showing occupancy in the high 30’s to mid-40 per cents on average per day. Fridays are almost universally remote working days with office attendance extremely low. No matter how corporate executives lament the fact that their people do not want to come to the office, the employees have the upper hand in this labor market and are much more attracted to remote working than even hybrid working. Smaller companies seem to be having more success keeping their teams in the office than large ones and have less regulations and HR issues to deal with.
So far, the largest deal of 2022 is pharmaceutical giant Regeneron’s lease of 200,000 square feet of space at 175 King St. in Armonk. This is the former headquarters of Swiss Re, who has been marketing the building for lease for years. Regeneron will use this space as it continues to build out its expanding Tarrytown campus, as it cannot build new buildings as fast as it is growing. They will move into their new building likely within the next 5 years, but at the moment it is positive absorption for the market.
Downtown White Plains has had several large blocks of space near the Metro-North station come back to the market and its overall availability has increased to over 23%. Leasing velocity is down about 1/3 from last year in this submarket, even though some firms have moved to the train station area to get closer to public transportation and in-town amenities for their employees. A number of tenants have shrunk their space, including Sabra Dipping, which moved into a 6,000 square foot space downtown after vacating more than 30,000 square feet on Westchester Ave.
I believe that these downsizing trends will continue in the future as companies continue to re-evaluate how they will operate and how many people will be in their office. Companies and law and accounting firms have clearly learned how to operate remotely, and productivity is not suffering. The repurposing of Westchester’s office space to medical and residential uses will continue to shrink the overall market, which will soften the blows a bit. It will be very interesting to see what happens in our market for the rest of the year.