Jones Lang LaSalle reports Westchester County office market level off at midyear 2013; Notable absence of large deals fuels small drop in vacancy rates

Jones Lang LaSalle reported that the Westchester County, real estate market saw a minor increase in vacancy rates and very little change in overall asking rental rates at midyear 2013. While leasing activity remained moderate, the county saw a notable absence of big transactions, posting just one deal larger than 20,000 s/f this quarter. "The past six months have seen little movement in Westchester County's economic outlook, particularly in the labor market," said Chris O'Callaghan, managing director and Westchester County market lead for Jones Lang LaSalle. "While the numbers show some hiring is taking place, local businesses remain cautious. We have even seen some downsizings. The county remains a highly-desirable location to both live and work, however, and once employment picks up, we expect the office market to reflect that growth." Although Westchester County saw some employment growth, vacancy rates rose slightly throughout Westchester County at midyear 2013. This upward shift resulted from the combination of tenants exiting the market completely, such as The Navigators Group Inc., or downsizing by firms while relocating within the market. The county's overall vacancy rate rose to 18.7% in the second quarter of 2013, increasing 1.1%(or .2% points) from the overall vacancy rate of 18.5% the previous quarter. The class A vacancy rate grew to 20.7% this quarter, an increase of 1% (or .2% points) from the class A vacancy rate of 20.5% in the first quarter of the year. After posting two consecutive quarters of increases, average asking rental rates remained mostly stable throughout Westchester County at midyear 2013, as building owners moderate rent growth to remain competitive in a weak market. Overall rents barely changed in the second quarter of 2013, rising to $26.10 per s/f from overall rates of $26.09 per s/f the previous quarter. Rents for the county's class A properties fell slightly to $26.64 per s/f this quarter, a drop of 1% from class A rents of $26.91 per s/f in the first quarter of the year. Westchester County leasing activity remained at moderate levels in the second quarter of 2013, totaling less than 530,000 s/f. This compares to deal volume of slightly more than 500,000 s/f in the first quarter of the year, which marked a decline from the 870,000 s/f of space leased in the final quarter of 2012. At the same time, the county saw a notable absence of deals larger than 20,000 s/f this quarter. While large lease transactions are not commonplace in Westchester County, the area typically sees at least a handful of deals in the 20,000 s/f range each quarter. The I-287 East Corridor recorded the largest number of deals this quarter, emphasizing the shifting preference of Westchester-focused tenants to this submarket from the White Plains CBD/Railroad submarket. In terms of industry, professional and business services drove velocity, accounting for nearly a third of leasing activity at midyear 2013. New transaction volume was on par with renewals, in contrast with the first quarter when new leasing dominated activity. Three of the top four transactions closed in the second quarter of the year were new leases: * IHS Herold Inc. signed a sublease for 15,078 s/f at 1 North Lexington Ave. in the White Plains CBD/Railroad submarket. * Donald J. Pliner Co. inked a sublease for 13,688 s/f at 1 North Lexington Ave. in the White Plains CBD/Railroad submarket. * WHI Solutions Inc. completed a renewal for 10,902 s/f at 5 International Dr. in the I-287 East Corridor submarket. * ENT and Allergy Associates LLP expanded by 9,390 s/f at 560 White Plains Rd. in the I-287 West Corridor submarket. ENT and Allergy Associates' expansion deal, and New York Medical College's purchase of the 248,000 s/f 19 Skyline Drive in the Westchester North submarket highlight the rapidly growing presence of health services in Westchester County. The deals also tie into the county's continued investment in the biotech and life-science sectors. White Plains CBD The White Plains CBD posted an increase in vacancy rates in all building classes, as tenants eye the more-desirable Fairfield County transit-hub submarkets. The boost in class A vacancy rates resulted from Reader's Digest putting two floors at 44 South Broadway on the market for sublease. The overall vacancy rate rose to 22.5% in the second quarter of 2013, an increase of 4.2% (or 0.9% points) from the overall vacancy rate of 21.6% the previous quarter. The submarket's class A vacancy rate grew to 24.4% this quarter, an increase of 3.0% (or 0.7% points) from the class A vacancy rate of 23.7% in the first quarter of the year. Overall rents in the White Plains CBD dropped to $27.95 per s/f in the second quarter of 2013, a decrease of 2.9% from overall rates of $28.79 per s/f the previous quarter. Rents for the submarket's class A product fell to $28.49 per s/f this quarter, a decrease of 3.1% from class A rates of $29.39 per s/f in the first quarter of the year. I-287 East Corridor The entire I-287 corridor recorded a significant increase in vacancy rates at midyear 2013, fueled in part by The Navigator Group's relocation to Stamford, Conn.; space shuffling by The Journal News and Xylem Inc.; and the addition of a large block of available space coming in Rye. The overall vacancy rate in the I-287 East Corridor rose to 18.4% in the second quarter of 2013, an increase of 5.1% (or 0.9% points) from the overall vacancy rate of 17.5 % the previous quarter. The submarket's class A vacancy rate grew to 19.6% this quarter, an increase of 4.8% (or 0.9% points) from the class A vacancy rate of 18.7% in the first quarter of the year. Tepid demand and limited hiring continue to weaken landlords' position, driving down asking rents in less-desirable buildings. In the submarket's premium buildings, however, steady absorption helped stabilize rates. Overall rents fell to $27.28 per s/f in the second quarter of 2013, a decrease of 1.6% from overall rates of $27.71 per s/f the previous quarter. Rents for the submarket's class A product dropped to $27.26 per s/f this quarter, a decrease of 1.7% from class A rates of $27.72 per s/f in the first quarter of the year.