Newmark released its third quarter 2018 numbers for Westchester County’s office real estate market, highlighting positive leasing trends and a further decline in vacancy that is anticipated to carry through the end of the year. “Nearly 450,000 square feet of leasing activity was completed at quarter’s end,” reported Karolina Alexandre, Newmark’s research manager. “This represents an increase of 35.1% from the second quarter,” she continued. The county has entered its eighth consecutive quarter of occupancy gains, having realized 910,000 square feet in positive net absorption since year-end 2016.
So far this year, 1.2 million square feet of leasing activity has been tracked countywide. From this total, new deals comprised 751,000 square feet, or 63.5%, while renewals comprised 432,000 square feet, or 36.5%. A further breakdown reveals an increased number of expansions compared to previous years. Approximately 221,000 square feet, or 18.7% of the leasing completed this year were expansions, while downsizings totaled 53,122 square feet, or 4.5%.
“The trends in Westchester County are changing in that tenants are either expanding their footprints or opening new offices at an increasing rate, rather than relocating locally or renewing in less space,” said Larry Ruggieri, senior managing director with Newmark.
Tenant touring activity remained strong, and with a shortage of quality options in some parts of the county there has been an increase of early renewals. “Tightening markets have necessitated the need for tenants, who are competing for scarce Class A office space, to negotiate early renewal terms in order to strike a deal,” said Glenn Walsh, executive managing director with Newmark.
Some landlords in Westchester County are certainly reaping the benefits of this increased activity. RPW Group, one of Westchester County’s largest landlords, has seen an abundance of activity at their newly acquired office buildings at 925 & 1025 Westchester Avenue in White Plains. With the next generation of the Weisz family running the day-to-day operations of these two buildings, leasing has been brisk. Recent activity includes a 6,000 square foot expansion by Penino & Moynihan at 1025 Westchester Avenue, bringing their total footprint to 12,000 square feet, and a 7,561 square foot new lease by Red Key Solutions at 925 Westchester Avenue. Additionally, Newmark, on behalf of RPW Group, is currently out to lease with several new tenants totaling 20,000 square feet at these two buildings.
Elsewhere in RPW Group’s portfolio, Brown & Brown, an insurance company recently, signed a lease for 15,000 square feet at 1133 Mamaroneck Avenue, representing a 5,000 square feet expansion for the company. AutoNation also committed to a new 13,000 square foot lease for a new office location at the same property. At 450 Mamaroneck Avenue in White Plains, RPW has had similar positive leasing experiences with Somnia Anesthesia signing a lease to open a new 13,000 square foot facility, which comes on the heels of a 10,574 square foot renewal and expansion by Westchester Eye Associates. These two new transactions bring 450 Mamaroneck Avenue to near full occupancy.
“As the Westchester market continues to strengthen, we are seeing greater tenant demand for buildings that are highly amenitized, ” said Andrew Weisz, Vice President with RPW Group, “Now more than ever, RPW Group is investing portfolio-wide in our building technology, infrastructure and amenities. Our diverse tenant base has responded well to these advances as we are seeing strong organic growth. Similarly, we are pleased with the flurry of new tenant activity to date and look forward to continued momentum as we close out the year,” Weisz continued.
In the Downtown White Plains market, Class A office space is being quickly gobbled up, with very few options for large blocks of space remaining. Over the past 24 months, this market has captured more than 60.0% of the net occupancy gains realized in Westchester County. As a result of the recent activity, rental rates of Class A properties in the CBD have gone up by 10.0% in the last 36 months, from an average of $31.72/ square foot to $34.91/square foot at the end of Q3 2018. Properties, such as White Plains Plaza (comprising 445 Hamilton Avenue and 1 North Broadway) have enjoyed a burst of activity over the last few years. Since Ivy Equities took ownership of the property at the end of 2015, more than 300,000 square feet of leasing has been closed. With the recent completion of a $30 million renovation project, new tenants looking for efficient, amenity-rich options have signed new or renewed their existing leases at the complex. These include Stark Business Solutions’ 20,000 square foot renewal and expansion, Crown Castle’s 11,000 square foot new lease, Brown, Guttadaro, Gaujean, Prato & Sastow’s 7,500 square foot renewal and Renzulli Law Firm’s 7,245 square foot new lease.
“The buzz of market activity in Westchester County means you have to be ready to meet the needs and wants of your current and future tenants,” said Eric Levy, Vice President of Asset Management with Ivy Equities. “Modern amenities, along with conveniences including accessibility to restaurants, public transportation, and services like a conference center will play a role in the decision-making for a tenant who wants to be able to attract and retain top talent.”
Concerning business sectors, much of the activity has been driven by the continued growth in the county’s healthcare sector. Healthcare-related tenants have captured 31.0% of the leasing activity year-to-date. In contrast, the insurance sector captured a 12.0% share, followed by communications with 10.0%. Medical practices such as Montefiore Medical Center have experienced incredible growth over the past decade. In 2017, Montefiore signed renewals totaling approximately 300,000 square feet at Mack-Cali’s South Westchester Executive Park in Yonkers where they have been tenants for the past 20 years. Continuing their growth into 2018, the medical group signed new leases this quarter for an additional 30,000 square feet at 555 Taxter Road in Elmsford and a 22,000 square foot space at 20 Cedar Street in New Rochelle. ENT & Allergy Associates further expanded their locations and services throughout Westchester County by signing a new 15,430 square foot lease at Celestial Capital Group’s 222 Bloomingdale Road, also in White Plains.
The overall availability rate in Westchester finished the third quarter at 21.1%, down from 22.2% a year ago and the lowest since Q4 2014. Although this rate is still five percentage points higher than pre-recession levels, the county could see a significant downward shift in availability in the near term if proposals are approved for the redevelopment of IBM’s 1.2 million square foot campus in Somers into a STEM high school. This would mean a staggering reduction of 11.6 percentage points in the northern market from 34.9% to 23.3% and a 3.2 percentage point reduction for the county, from 21.1% to 17.9%.
“As we continue to scrutinize the Westchester market, all indicators point to a solid 2018,” commented Alexandre. “This may be the year where availability rates for true Class A office space (excluding the handful of large blocks that have been stagnant for the past 2+ years) will dip down to the single digits. Time will tell.”
Newmark (“Newmark”), operated by Newmark Group, Inc. (“Newmark Group”) (NASDAQ: NMRK), is one of the world’s leading and most trusted commercial real estate advisory firms, offering a complete suite of services and products for both owners and occupiers. Together with London-based partner Knight Frank and independently-owned offices, Newmark’s 16,000 professionals operate from approximately 430 offices on six continents. Newmark’s investor/owner services and products include investment sales, agency leasing, property management, valuation and advisory, diligence, underwriting, government-sponsored enterprise lending, loan servicing, debt and structured finance and loan sales. Occupier services and products include tenant representation, real estate management technology systems, workplace and occupancy strategy, global corporate services consulting, project management, lease administration and facilities management. For further information, visit www.ngkf.com. Newmark Group is a publicly traded subsidiary of BGC Partners, Inc. (“BGC”) (NASDAQ: BGCP), a leading global brokerage company servicing the financial and real estate markets.
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