A minor increase in vacancy, a decrease in absorption, and steady rental rates resulted in a middling second-quarter showing for the Westchester office market. One expert attributes the disappointing vacancy and absorption rates to an outlier, IBM’s building at 1133 Westchester Avenue in White Plains. The company’s exit from the building — it was the sole occupant — dumped 550,000 square feet of vacant space onto the market.
“The major thing that has skewed the statistics is again a single building, which has been Westchester’s Achilles’ heel over the past 20 years,” said Chris O’Callaghan, a senior director at Cushman & Wakefield.
Vacancies in Westchester rose from 14.5 percent in the second quarter of 2005 to 15.4 percent in the same period of 2006. Cushman & Wakefield noted, however, that the IBM building inflated the overall vacancy rate by 1.6 percent.
Absorption rates, the amount of space that gets picked up for rental, dropped from 221,021 square feet to negative 212,981 in the same period. Again, without the IBM building, Cushman & Wakefield’s report stated that “absorption would have ended with positive 257,625 square feet.”
The central business district of White Plains, which does not include the IBM building, saw positive results: Vacancy has continued a two-year fall to 12.9 percent in the second quarter of 2006, and O’Callaghan predicts this value dropping to mid-single digits by year’s end, tightening the White Plains market and raising rents.
“[The IBM building] is a cloud over the market,” said O’Callaghan. “Under the cloud, I see upward momentum. You have much more tenant diversity. The pace of major corporations putting buildings back on the market in Westchester has slowed to a trickle, whereas it seemed that the faucet was open for 15 years.”
Fewer corporations own large percentages of the market, as IBM did, O’Callaghan said. He attributes this to a global migration of international companies. Corporations once operated from a central headquarters, but now travel to their clients by opening operations worldwide.
Asking rents in Westchester are stable, fluctuating between $29 and $30 per square foot over the past two years. The Manhattan market, on the other hand, has seen spikes in rent that bode well for Westchester and other satellites of New York City.
Rents in Manhattan have reached an average of $58 per square foot in Midtown and $35 in Downtown, according to Newmark Knight Frank.
“The problem with Downtown Manhattan is there’s no supply,” O’Callaghan said, meaning that Midtown tenants cannot migrate south to save a penny. “Because of the number of corporations looking [to move], I predict that one or two of them will land in Westchester.”