Westchester County’s commercial real estate market ended 2019 in a strong position. But at the start of 2020, the news of the pandemic was already being heard, culminating in a complete shutdown of all business in mid-March.
Approximately 300,000 square feet of leasing was tracked in Westchester County during the first quarter of 2020, which was down 37.6% year over year and 46.2% from Q4 of 2019. PepsiCo vacated 376,000 square feet at 1111-1129 Westchester Ave. in White Plains, where the beverage company had done a relatively short-term lease to house its employees while it was undergoing a major renovation of its headquarters in Purchase.
All submarkets except the West-287 market experienced a decline in leasing velocity in Q1 of 2020. The perennially strong East-287 market leasing dropped from approximately 200,000 in Q4 of 2019 to about 130,000 in Q1 of 2020.
The overall leader was the West-287 submarket, which recorded 75,000 square feet of leasing in 22 transactions. Good volume, but all due to small deals, with most of them under 5,000 square feet. This was almost double the leasing volume of Q4, which totaled 40,000 square feet in 11 transactions.
The White Plains CBD saw a decline of 24.9% and 48.6% in leasing volume over the past year and past quarter, respectively, per Newmark Knight Frank’s report. This market registered about 80,000 square feet leased in 18 transactions vs. a historical Q1 average of 120,000 square feet.
Business executives obviously had much more important and time-sensitive things to do than think about or shop for space. In March, New York state prohibited both residential and commercial real estate brokers from showing properties in person.
While there were many stories in the press about New York City companies looking for satellite office space in suburban markets, my personal belief is that these companies were doing some research and then putting the results in a file, waiting to see if there was any real need to shop for remote spaces.
Many commercial tenants who had looming lease expirations chose the Band-Aid approach, securing one- or two-year extensions to give themselves some time to figure it all out.
The second quarter of 2020 reflected the total shutdown of the real estate market. However, leasing activity was just about the same as in Q1 at 300,000 square feet, a year over year decrease of 36.6%. With a local move by Argus of 66,000 square feet (from one sublease space to another sublease space) the overall CBD leasing volume grew to 140,000 square feet, almost doubling the Q1 statistic. Other than the Argus sublease, the only other transaction of substance was Sterling National Bank’s 32,000-square-foot new lease at Reckson’s 360 Hamilton Ave. in the CBD.
In the 3rd quarter of the year, leasing activity continued at a steady, but slow pace at about 315,000 square feet, well below the historical Q3 average of 450,000 square feet, according to Newmark. Renewals made up half of total leasing volume (many of those for short terms) and were up by 74.5% from the 2019 mid-year total.
Year to date absorption was a negative 1.2 million square feet in Q3, with about 550,000 square feet of that registering in that quarter. The East-287 submarket led with a negative absorption of 666,099 square feet and the White Plains CBD accounted for 215,890 square feet of the net loss. Much of the loss in the CBD was from Alliance Bernstein, which had announced its intention to relocate its administrative functions to Nashville several years ago.
At the end of Q3, overall availability was 24.4% vs. 22.3% in Q2 and 20.7% a year ago. Class A availability in the East-287 submarket was 20.4%, up a whopping 6.8 percentage points from a year ago. And CBD availability ended at 22.8%, up from 18.3% last quarter and last year.
Office market year end 2020
At 260,240 square feet, the fourth quarter of 2020 leased about half of the 507,490 square feet leased in Q4 of 2019. The net absorption in Q4 of 2020 was negative 54,000 square feet vs. a positive 153,000 square feet in 2019, so a decrease of more than 200,000 square feet for this period.
Westchester ended the year with 1,148,300 square feet of total leasing activity. This is a 35% decrease from 2019’s total leasing (1,762,710 square feet), which actually compares somewhat favorably to the national office leasing decrease of about 40% for the year.
The county had a negative absorption of space totaling 1,292,275 square feet vs. positive net absorption of 273,610 square feet at year end 2019, or a total swing of 1,565,885 square feet. This is a huge reversal of fortune in a market that totals 27.1 million square feet.
Year end 2020’s availability rate (including direct and sublease space) was 24.9% vs. 20.1% in 2019. The 2019 figure was the lowest since 2014, which was another indicator that our market was strong and getting stronger, until the pandemic hit.
While not all that almost 24% availability increase (the 4.8% increment between 2020 and 2019) was solely due to Covid, much of it certainly was. Sublease offerings have certainly increased, as companies are looking to both reduce costs and to right-size their space in anticipation of having fewer people in their offices in the foreseeable future. Many of these subleases are short term and these leases are much more likely to run out than they are to be subleased.
The commercial real estate picture in Westchester is still not clear. I have heard almost no concrete plans for offices to fully reopen, and those companies that have mentioned it are thinking about the third or fourth quarters.
Work from home is working well enough for most companies and will likely continue in some form well after offices do reopen. This being said, there are businesses that are making decisions and completing leasing transactions. There are other businesses whose leases are a year or two from expiration and they are already pursuing new leases or lease renewals knowing that they can negotiate a little harder in the current environment. The world will get back to some sort of normal in the foreseeable future. I will keep you posted as new information emerges.
Howard E. Greenberg is president of Howard Properties Ltd. In Valhalla. Greenberg has more than 34 years of experience as a commercial real estate broker and tenant representative in the Westchester County market. He has also represented tenants throughout the United States and in Europe. He can be reached at (914) 997-0300 or at [email protected]