Strong Leasing Volume Can't Hold Down Vacancies

WHITE PLAINS, NY—While brokerage firm JLL reports that Westchester County enjoyed a surge in leasing activity in the second quarter, the vacancy rate countywide and in many of its major markets continue to be inflated and north of 20%.

The marked increase in lease deals in Westchester County began in the first quarter when Westchester posted the most leasing activity the market had seen in almost two years.

“Westchester County has entered a transformative period that will improve the quality and competitiveness of much of its office market,” says Chris O'Callaghan, managing director and Westchester County market lead for JLL. “Developers have already repositioned numerous former office buildings and are approaching municipalities for change of use zoning approval for several others, all with space efficiency top of mind. In addition, transit-oriented development continues to be the main focus of many new projects, as employers are increasingly concerned with ease of transportation for employees.”

Year-to-date, leasing activity in Westchester County increased significantly each quarter. The county recorded 731,048 square feet in transactions in the second quarter of 2015, a 50% increase compared with the 488,474 square feet leased in the previous quarter. Deal velocity in the first quarter of 2015 was 70% higher than the 286,104 square feet in transactions completed at year-end 2014, JLL states in its market report.

Although leasing activity is higher, space givebacks caused the county to register 343,585 square feet in negative absorption in the second quarter. The chief reason behind the negative absorption was PepsiCo Inc. vacating its long-time home at 1 Pepsi Way in Somers. The move sparked negative absorption of 212,658 square feet in the Westchester North submarket alone at mid-year 2015. The beverage giant was also responsible for the two largest transactions completed at mid-year 2015 as it leased 222,626 square feet at 1111 Westchester Ave. and 138,555 square feet at 1129 Westchester Ave., both in White Plains.

The overall Westchester County office vacancy rate stood at 22.1% at the end of the second quarter of this year, up from the 21% rate three months ago. The Class A office vacancy rate for Westchester at the end of the second quarter was 24.6%, up from 23.1% in the first quarter of 2015.

The Class A office vacancy rate in the White Plains CBD stood at 25.4% as compared to 24.6% three months ago. Asking rents at Class A office properties in Downtown White Plains averaged $29.04-a-square-foot at the end of the second quarter, a 3.7% increase from the previous quarter when landlords were looking for $28.01-per-square-foot.

JLL notes that Westchester County's approximately 634,000 square feet of new office space under construction this quarter is all pre-leased. The projects include Regeneron Pharmaceuticals Inc.'s new space at 777 Old Saw Mill River Road in the I-287 West Corridor and 252,000 square feet of space under renovation at 700 Anderson Hill Road in the I-187-East corridor.