JLL's second-quarter Westchester office market report; Westchester County posts another quarter of rising leasing activity

JLL reported that Westchester County continued to enjoy a surge in leasing activity in the second quarter of 2015. The boost in deal volume began in the first quarter of the year, when the county posted the largest amount of leasing activity the market had seen in nearly two years. "Westchester County has entered a transformative period that will improve the quality and competitiveness of much of its office market," said 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 s/f in transactions in the second quarter of 2015, a 50% increase compared with the 488,474 s/f leased in the previous quarter. Deal velocity in the first quarter of 2015 was 70% higher than the 286,104 s/f in transactions completed at year-end 2014. Although deal volume remains on the upswing, Westchester County still witnessed 343,585 s/f in negative absorption this quarter, mainly due to PepsiCo Inc. vacating its long-time home at 1 Pepsi Way in Somers. The move fueled negative absorption of 212,658 s/f in the Westchester North submarket alone at mid-year 2015. PepsiCo was also responsible for the two largest transactions completed at mid-year 2015. The food and beverage giant took 222,626 s/f at 1111 Westchester Avenue and 138,555 s/f at 1129 Westchester Avenue, both in White Plains. The top 10 transactions in Westchester County, by square footage, were evenly split between renewals and relocations this quarter. Although Westchester County has approximately 634,000 s/f of new office space under construction this quarter, all of that space is pre-leased. The projects include Regeneron Pharmaceuticals Inc.'s new space at 777 Old Saw Mill River Rd. in the I-287 West Corridor and 252,000 s/f of space under renovation at 700 Anderson Hill Rd. in the I-187-East corridor. Westchester County's overall vacancy rate rose to 22.1% in the second quarter of 2015, a year-over-year increase of 7.3% (or 1.5% age points) from 20.6%. The county's Class A vacancy rate grew to 24.6% this quarter, a year-over-year increase of 9.8% (or 2.2 percentage points) from 22.4%. Year-over-year, overall rents in Westchester County fell to $24.28 per square foot at mid-year 2015, a decrease of 5.5% from $25.69 per s/f. Year-over-year, the county's class A rents dropped to $25.44 per s/f this quarter, a decrease of 4.4% from $26.60 per s/f. White Plains CBD Although Westchester County's suburban markets continued to draw the majority of interest from tenants, the White Plains CBD recorded its share of transactions, most of which were for spaces smaller than 10,000 s/f. Prudential Financial Inc. completed the largest lease of the second quarter of 2015, taking 16,197 s/f at 360 Hamilton Avenue in White Plains. The insurance, legal and financial services sectors accounted for 20% of all leasing in the submarket this quarter. The class A market remained strong despite limited leasing activity. Year-over-year, however, the vacancy rate increased slightly due to several larger tenants moving out of the city which resulted in negative absorption of 41,415 s/f for the quarter. Activity within the submarket's Class B product fueled a drop in overall vacancy rates to 24.7% in the second quarter of 2015, a year-over-year decrease of 2.4% (or 0.6 percentage points) from 25.3%. Year-over-year, the submarket's class A vacancy rate rose marginally to 25.4% this quarter, an increase of less than 1% (or 0.1 percentage points) from 25.3%. Year-over-year, overall rents in the White Plains CBD fell to $26.81 per s/f in the second quarter of 2015, a decrease of 2.3% from $27.43 per s/f. Year-over-year, the submarket's class A rents dropped to $29.04 per s/f this quarter, a decrease of less than 1% from $29.27 per s/f. I-287 Corridor The I-287 Corridor remained one of the strongest submarkets of Westchester County in the second quarter of 2015. With easy access from major highways, the I-287 East Corridor and I-287 West Corridor boast many of the county's most desirable office assets. Combined, the two submarkets accounted for 24.8% of all leasing activity in Westchester County this quarter. In the three largest transactions along the I-287 Corridor this quarter retail and wholesale baker Vie De France Yamazaki Inc. signed for 24,678 s/f at 525 Executive Boulevard in Elmsford (I-287 West); tile and mosaic manufacturer Walker & Zanger Inc. took 21,764 s/f at 36 Midland Avenue in Port Chester; and accounting firm Marks Paneth LLP leased 19,939 s/f at 4 Manhattanville Rd. in Purchase (both in I-287 East). Despite strong leasing activity, the submarket recorded year-to-date negative absorption of 70,000 s/f year-to-date and stagnant vacancy rates as several tenants relocated out of the market. Year-over-year, the overall vacancy rate in the I-287 East Corridor marginally rose to 17.8% in the second quarter of 2015, an increase of less than 1% (or 0.1 percentage points) from 17.7%. The submarket's class A vacancy rate remained unchanged at 18.6% this quarter. Year-over-year, overall rents in the I-287 East Corridor rose to $25.67 per s/f in the second quarter of 2015, an increase of 1.7% from $25.25 per s/f. Year-over-year, the submarket's class A rates grew to $25.88 per s/f this quarter, an increase of 2.4% from $25.27 per s/f.