Big deals prop up Westchester’s ailing office market

As Westchester’s outmoded office parks come off the market and become modern retail and apartment buildings, a side benefit has been to reduce overall office space in the area by more than 4 million square feet, which is keeping vacancy rates lower and prices stable.

But downtown White Plains remains red-hot, thanks to some large deals in the past few months as companies look to move to urban areas to attract skilled employees. William Cuddy, executive vice president at CBRE based in the company’s Westchester/Fairfield office, was upbeat overall about the Westchester office market, especially White Plains’ Central Business District (CBD). “The market has sustained momentum; it’s very positive in terms of leasing velocity. We’ve seen an increase in average asking rents and a reduction in the vacancy rate,” Cuddy said.

Other brokerage firms expressed similar sentiments about White Plains, where many of the biggest deals of the year have taken place. These include Japanese bank Sumitomo Mitsui signing a lease in May for 101,000 square feet at 1 North Lexington Avenue — the largest deal this year. In addition, Dannon Yogurt maker Danone North America closed on an 82,000-square-foot lease at 1 Maple Avenue in White Plains in June, according to Newmark Knight Frank’s second-quarter report. The report also said Premier Home Healthcare Services secured 26,356 square feet at 445 Hamilton Avenue in the CBD.

One deal that’s still causing buzz in the area involves New York Life, which was behind the largest lease in 2016. The company took roughly 180,000 square feet at 44 South Broadway in White Plains, and the building will also serve as the company’s new Westchester headquarters. New York Life previously sold its building in Sleepy Hollow to Regeneron and intends to relocate 500 employees to the new location, brokers say.

The insurance company’s relocation is just one recent example of businesses’ continued migration to urban areas. In many suburban areas, such as Northern Westchester, the numbers are not encouraging. The vacancy rate for Class A office space in Northern Westchester shot up from 37 percent in the first quarter to a whopping 63 percent in the second quarter, according to a Jones Lang LaSalle report. However, that’s mainly due to the fact that all of the 1.1 million square feet of IBM’s former campus in Somers went on the market.

Elsewhere, the figures are less dramatic. The overall total vacancy rate in Westchester rose from 21.7 percent in the first quarter to 24.7 percent in the second, JLL reported. The total vacancy rate in White Plains at the end of the second quarter was 22.5 percent, just a notch above 21.4 percent in the first quarter.

Brokers also said companies aren’t just looking to be in the CBD — many tend to desire a specific location near Interstate 287, where the growth in multifamily will attract young professionals.

Glenn Walsh

“It seems everybody wants to be south of 287 and there’s a little bit of a push to be in downtown, more so than usual because they want to be able to have that connectivity to the public transportation,” said Glenn Walsh, an executive managing director at NKF based in Westchester. Employers are trying to locate in desirable areas in an effort to help recruit and retain the most talented employees, Walsh said.

Westchester’s direct asking rent was $26.49 per square foot in the second quarter, almost on par with the $26.92 in the first, the NKF report said. In White Plains’ CBD, where the availability rate dropped to 17.7 percent in the second quarter from 20 percent in the first, the average rate went from $33.44 to $34.16.

Brokers identified a few factors behind the evolving office market in Westchester. In addition to the move away from suburban office parks to attract skilled workers, several owners are repurposing older buildings into retail or residential units, a trend that’s removing large chunks of office space from the inventory.

Asked to explain the strong demand in the downtown area, Chris O’Callaghan, a managing director at JLL who oversees Westchester, said it is all about creating a work-life-play balance for employees and beating the competition.

“The fight over good talent is ongoing. If tenant A is in a suburban office park with limited amenities and tenant B goes to downtown White Plains, tenant B is going to attract the best because they have the best hotels, restaurants and shops and so on,” he said.

Walsh also expressed optimism that the rest of the year would bring improvements. “Things are going to get tighter, rental rates are going up in downtown White Plains, and concessions are getting smaller in the east side and downtown White Plains,” he said.

Cuddy of CBRE agreed that renewed interest in White Plains is linked to the unprecedented level of new multifamily construction projects in the works, which is drawing in an attractive workforce.

As of June, some 3,419 units within walking distance of the White Plains train station were either under construction, approved or in the process of securing approval, Cuddy said. He said that would likely cause the availability of high-quality office space in White Plains to further shrink.

“The market is severely constrained by a lack of quality Class A office inventory,” he said. “We could in short order have a deficit in Class A office space.”

Meanwhile, landlords who renovate office properties or convert them to other uses are seeing quick payoffs. In some parts of Westchester, including the Route 287 corridor, several older buildings — including along Corporate Park Drive in Harrison — are being demolished to make way for multifamily units and a retail area that will include a 125,000-square-foot Wegmans supermarket. “People are getting rid of office space and converting it to residential and … into medical,” said Walsh of NKF. “And we’ve seeing a dwindling of inventory in the last couple of years of over 4 million square feet in Westchester County. We were at 32 million, and now we’re at 28 million in total inventory of office space. So that’s helped to contribute to the drops in the vacancy rate as there’s less product out there.”

Lou Amalfitano, a Westchester-based vice president at the commercial real estate firm Avison Young, agreed that the market is diverse and that residential developments will have an impact on the office market. However, he cautioned against reading too much into numbers, because just a handful of leases or vacant property in Westchester can have a major impact on figures reported by brokerage firms.

“The thing to keep in mind is that this is a very small market, so you can have one or two or three quarters where things can move rather quickly depending on what happens in a particular quarter with a particular lease or two,” he said.

But he’s pleased with the direction the market is headed.

“I am optimistic,” said Amalfitano. “It’s a very diverse market, it’s a very steady market, and any office owner that has capital to put into their building and make improvements will be successful.”