Slow Recovery Expected for '03 Westchester Office Market

WHITE PLAINS-A panel of brokerage experts predicted that the Westchester County commercial office market will experience a slow but steady recovery in 2003, while the county’s retail real estate sector will continue to post strong returns this year.

Those were the views of a panel of commercial brokers who participated in the Westchester County Board of Realtors’ Commercial Investment Division’s Annual Real Estate Roundtable on Dec. 19 at the Esplanade Hotel in White Plains.

The panelists at the session were William Cuddy, senior managing director of Insignia/ESG; Christopher O’Callaghan, a principal of McCarthy O’Callaghan Co. Inc. of White Plains and William Hesse, president of Aries, Deitch & Endelson of Hartsdale.

Cuddy and O’Callaghan agreed that the Westchester County office market did indeed suffer from the economic downturn and the impact of the Sept. 11 terrorist attacks but has not experienced the same problems as the New Jersey and Fairfield County, CT office markets.

Both said that Westchester County saw a large amount of sublease space come on the market in 2002, but by year’s end a significant amount of that sublease space has been absorbed. In particular, Cuddy noted that significant inroads have been made at the Westchester One office building at 44 South Broadway in downtown White Plains where IBM had put a significant amount of space on the market available. Cuddy said that just two of the top 10 lease deals of 2002 in Westchester County (Morgan Stanley’s purchase of the 725,000-sf Chevron/Texaco headquarters and Fuji Photo Film’s 150,000-sf lease in Valhalla) were for more than 100,000 sf. In fact, the remaining eight lease deals ranged in size from 30,000 sf to 50,000 sf, he added.

“What does that tell you?” Cuddy queried. “It tells you that you have relocations that involve smaller- to medium-size companies. The profile of these organizations is radically different than it was 10, 15 and 20 years ago when these companies were heavily clerical-driven.”

Cuddy said that for 2003 he expects things to remain stable, with no dramatic spikes up or down in the county’s office vacancy rates. He added that Westchester is still very much aligned with New York City and “when they feel pain, we feel pain.” However, he predicted the market will continue its current slow road back to recovery in 2003.

O’Callaghan said that despite some declines in office asking rents, owing in part to the introduction of sublease space to the market, well-maintained quality buildings in Westchester will continue to lease up in 2003. However, buildings with large floor plates will continue to have trouble finding tenants in today’s marketplace.

While Westchester has been resilient, the Fairfield County, CT office market is now having some major problems.

“Fairfield County has gone in the opposite direction,” he said. “They have larger issues to deal with over the coming years.” O’Callaghan noted that the region’s overburdened transportation network (I-95 and the Merritt Parkway) is just one of a number of issues that will have to be addressed in Fairfield County before that market begins to significantly turn around.

Hesse covered the area’s retail market and said that there is very little available space at the moment in the county. Stating that he is “very bullish” on the retail market in Westchester for 2003, Hesse related that he “is reasonably certain that another major retailer” will soon occupy the former Sears store on Main St. and Hamilton Ave.; Cappelli Enterprises is in talks with a large retail chain for one floor (approximately 150,000 sf) at his City Center project; Fortunoff is about to make a deal with a high-end specialty natural foods grocer for between 35,000 sf to 40,000 sf at its new store complex in White Plains and that another development will be introduced soon next to Cappelli’s project for office and retail development in downtown White Plains.

He concluded that in addition to the lack of available inventory to meet tenant demand, another issue facing the retail industry is the fact that most stores have to hire staff from the Bronx, Putnam, Dutchess and elsewhere outside of the county because of the high cost of housing in Westchester.