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WHITE PLAINS, NY-Salvatore Campofranco, executive vice president and chief operating officer of Reckson Associates Realty Corp., expects a slow to moderate increase in office rental rates in New York’s northern suburbs and a steady decline in office vacancies in the next few years. In fact, he predicts Westchester’s office vacancy rate could go below 10% by 2005 or 2006.

Campofranco, who was the guest speaker at the Westchester County Board of Realtors Commercial Investment Division meeting on June 17, said that the Westchester County commercial office market will continue to improve this year, while the Fairfield County office sector will stabilize in 2004 and show some declines in office vacancy in 2005. Reckson Associates predicts Westchester’s office vacancy rate will drop slightly from 15.7% to 15.4% in 2004. The troubled Stamford, CT. office market will see its vacancy rate rise only slightly from 19.1% in the first quarter of this year to 19.6% in the first months of 2005, Campofranco noted.

In his presentation, Campofranco expressed concern over the “disconnect” that exists between commercial property values and market fundamentals both locally and in many markets across the US. He noted that in the Westchester-Fairfield marketplace, commercial office properties have been selling at record values, yet, market fundamentals are weak. He also said that rents have been falling, concessions are still high and cap rates are low.

He said that rising interest rates will put pressure on cash flows into the future, particularly on those properties that had signed tenants to high rents at the height of the market that are now coming up for renewal.

Campofranco noted that in the next 18 to 36 months, the office market will undergo a correction of sorts or achieve “connectivity” whereby property values will be in line with market fundamentals and cap rates. He said his firm believes that property valuations could decline anywhere from 10% to 25% in the next three years in some markets.

The Reckson executive also discussed how his firm has sold most of its non-core assets of late and is now primarily involved in the ownership and development of class A office properties in the New York metro area. In fact, he said that the company now has approximately $500 million in a war chest to be used for property acquisitions.

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