More Investment, Higher Rents To Come

One critical factor that will benefit both Westchester and Fairfield counties this year is the continued strength of the New York City office market. Due to tight conditions there, Dean Shapiro, executive managing director of CBRE's New York City office, says that some New York City firms will be forced to look outside of Manhattan, either to New Jersey, the outer boroughs or the Westchester/Fairfield region, due to cost considerations or the lack of available large blocks of space.

"Its hard to tell the timing," Shapiro says, "but there has been only one time in the past where we have gotten this supply constrained and that was back in 2000." He adds that the market is mirroring conditions from seven years ago in terms of the lack of available large blocks of space. In addition, huge price escalations in office rents in Manhattan could drive some firms to the less costly environs in the suburbs.

He thinks that unlike the past when many relocated across the Hudson to New Jersey, he feels the corporate moves will be more spread out throughout the region with some tenants landing in Westchester and Fairfield.

Looking to the future, Shapiro notes that as much as 10% of New York City's office leases are rolling over by 2010. The amount of space could approach 30 million sf, basically the size of the Westchester County office market. In coming years, as costs continue to rise in Manhattan, some of these firms could see Westchester and Fairfield as viable options.

Robert Caruso, senior managing director of CBRE's Westchester/Fairfield operation, says the brokerage firm expects rents to rise in both markets in 2007. While leasing will be strong in the area, Westchester County will struggle to fill a glut of office space put on the sublease market by the likes of Argent Mortgage, IBM and others that caused the county's office availability rate to spike to approximately 15% at year's end 2006.

IBM, which during its heyday in the 1980s had owned or leased 22% of Westchester County's office space, has pared down that share to 8% or a decrease of approximately five million sf.

Referencing Downtown White Plains, he says, "For the first time in history, prime buildings are asking $40 per sf and they are going to start getting it."

In Fairfield, he expects availability rates to drop countywide and particularly in prime locales like Stamford, Greenwich and Norwalk. At the close of 2006, Fairfield County's availability rate was at approximately 15%.

Covering the investment sector, Jeffrey Dunne, vice chairman of the New York Tri-State Investment Team for CBRE, says he is seeing a number of significant trends such as: a sharp decline in due diligence periods, more arbitrage and the compression of cap rates for properties in Central Business Districts in the New York area.

"We are closing a lot of deals in three to four months when they used to be closed in six months," he says.

Dunne says that more REITs will be sold this year. He also predicts 2007 "will be the best trading year ever" and adds that with office properties achieving record prices per sf in both markets, "the mentality for '07 is that everything is for sale."