Cautious optimism describes the 2016 mindset of those forecasting the commercial real estate market in Westchester, but the outlook varies greatly depending on which market segment is on the radar screen. Demand for rentals in the high-profile office segment looks moribund, while the retail market shows strong demand. Medical isn’t cooling; it’s just changing direction, while mixed-use developments tap into changing lifestyles. The divisions somewhat reflect the economy as a whole: full corporate purses with strings tightly cinched as consumer spending continues to fuel the economy.
“Given market realities, 2015 was about as good as we should have expected,” says Rakow Commercial Realty Group CEO Rick Rakow. And 2016 may follow a similar course, notes Jeff Warner, senior vice president of leasing for Westchester’s largest commercial property owner, Mack-Cali. “[This year] will be interesting,” he says. “It remains to be seen whether there will be any real economic growth, but I think it will be much the same as it has been.” Rakow, however, is predicting stronger growth for 2016: “We’ve gotten off to a positive start,” he says, “and we are busy working on new lease negotiations all around the county.”
Several trends put marks on the positive side of the equation for 2016, according to Westchester County Office of Economic Development Director William Mooney III. “From an economic-development standpoint, the real estate market has been positive in a wide range of areas,” he says. “These include housing, conversion of existing corporate space, healthcare expansion, and biotech expansion. Many of these projects have been approved and will be in construction in 2016.”
Commercial real estate isn’t a homogenous market, so here’s a segment-by-segment look at the year ahead.
Office rentals in Westchester are lagging, but building sales are up. Several major properties are now on the market and will draw interest in 2016, including 44 South Broadway in White Plains, which offers 825,000 square feet of Class-A office space.
Hot Meter: 4
“The 2015 market wasn’t great,” says Glenn Walsh, executive managing director of Newmark Grubb Knight Frank, a major broker in White Plains. “But most of the bad news is coming from north of I-287, where the vacancy rate is around 30 percent. The southern part of the county isn’t such a bad market.” Walsh points out that Northern Westchester has lost some big tenants in recent years, like MBIA in Armonk, and that those properties are just now being re-purposed.
According to data supplied by Houlihan Lawrence Commercial Real Estate Group, about 18 percent of the 23 million square feet of total Class-A office space (nicer buildings with amenities) in the Westchester market was vacant at the beginning of the year. Rental rates range from $28 to $37 per square foot in better buildings, although they dip to less than $25 in many places. The market is finding it difficult to generate higher rents, however. “A lot of people who were locked into $35 to $40 [per square foot] space from before the recession are planning to move to space in the mid-$20s,” according to Paul Adler Esq, regional manager for Rand Commercial, who is located in the broker’s White Plains office. “The go-go days are over.”
Corporate trends that favor smaller workforces supported by digital technology work against large buildings designed originally as headquarters for single tenants. “We have very few prospects looking for a 100,000-square-foot building,” Rakow points out.
The most successful office complexes in the county are those that have been reconfigured from single-tenant to multi-tenant buildings, to accommodate the new normal. Robert P. Weisz, CEO of RPW Group in Rye Brook, one of the county’s largest developers, followed up the conversion of 800 Westchester Avenue with another makeover at 1133 Westchester Avenue, setting the pattern for the I-287 corridor. Stamford developer Steven Wise is working on a similar project at the former MBIA headquarters, at 113 King Street in Armonk, which he purchased in 2015.
Also contributing to a brightening of the picture is the repurposing trend. “Some of the properties that are ripe for repurposing are on Corporate Park Drive off Westchester Avenue, for example,” says Rakow. If you come back in a few years, you’ll see housing, retail, some senior assisted living. There are going to be very different uses for those properties.” The town of Harrison is considering creation of a mixed-use zone in that area that would encourage redevelopment of the all-but-abandoned buildings. It’s an option under consideration in other towns, too, often falling under the “mixed-use” rubric.
Developers like Robert Weisz of RPW Group are converting spaces for multi-tenant use.
While office rents are lagging, the building investment market is heating up, according to Adler. “It was a solid market in 2015. People went from off of the sidelines to back in the game,” he says. “The single most important factor was that buyers and sellers have reached equilibrium after having a buyers’ market for the last six or seven years.”
In response, several major properties on the market are drawing strong interest. According to CBRE VP Mike McCall, these include the 700 series on Westchester Ave, 44 South Broadway in White Plains, and 100 Manhattanville Road in Purchase. “When new owners come into the market, that generally means rents are going to increase because the investors bought the buildings looking for growth,” he says.
Tom LaPerch, director and associate broker at Houlihan Lawrence Commercial in Rye Brook, believes this bodes well for the coming year. “I am optimistic that the market is coming back. There is a pent-up demand for new product.”
Hot Meter: 7
The most active sector in Westchester commercial real estate over the last several years has been medical space, with sweeping changes in the industry driving demand for both new construction and repurposing of existing office space. The prospects for 2016 are generally good, according to Guy Leibler, president of Simone Healthcare Development, a developer headquartered in the Bronx, although the demand may come from different directions as the wave of consolidation of county hospitals into NY metro institutions runs its course.
“I don’t see a lot of big medical office building projects in the near future, but I see a lot of small to midsize ambulatory projects in the 10,000 to 50,000 square-foot range,” Leibler explains. “Now it’s time to develop ambulatory care throughout the county. It’s been rather dormant the last few years because there wasn’t a real strategy, and there wasn’t capital to execute.” Liebler points to projects like White Plains Hospital’s new ambulatory center in Armonk, and forthcoming initiatives by Mount Kisco Medical Group [now CareMount Medical], WESTMED, and Crystal Run Healthcare. Plus, the Hospital for Special Surgery recently leased 50,000 square feet in White Plains for an outpatient center. “It’s going to be an exciting year,” Leibler says.
Hoping to capitalize on the continuing trend, Simone recently filed with the town of Harrison to build one final building at Purchase Professional Park, where WESTMED opened last year, at 3030 Westchester Avenue. “We hope to gain approval for 3040 Westchester Avenue, a 46,000-square-foot medical office building with a parking structure,” Leibler says. Simone does not have a tenant for the new building at this point. “The approval process takes about five months, then we will go to market,” Leibler explains.
Simone Healthcare Development plans to build one final building at The Purchase Professional Park in 2016.
The growth in the medical sector can be a mixed blessing, though. As LaPerch points out, “The consolidation, cost-cutting, and new medical center buildings leave behind a trail of small abandoned medical offices that don’t often lend themselves to other uses. I just received a listing in Mahopac, where a small practice was gobbled up by one of the bigger ones, leaving behind a chopped-up 2,500-square-foot medical space.” He adds that when those small spaces are repurposed for regular offices, they rent for at least 20 percent less than they did when they were medical offices.
As exciting as it is, the medical space segment accounts for less than 3.5 million square feet in Westchester.
Hot meter: 8
With more than 50 million square feet of space in the county, the consumer retail segment is the largest single segment in the commercial real estate market. It’s also one of the hottest, according to Bob Friedland, CEO of Friedland Realty Advisors, a longtime broker located in Harrison. “The retail market is dynamic,” he says. “In the major corridors, rents are going higher and higher, although there are pockets with vacancies. Overall, it’s pretty tight.”
Emblematic of the sector is the Cross County Shopping Center in Yonkers. “We are 99 percent leased, and our outlook is excellent,” says the center’s senior marketing director, Liz Pollack. The Center announced six new tenants in the fall (four are already open) and opened a 155-room Hyatt Place hotel last April. It plans three new openings for 2016. Not far away, at Ridge Hill, Forest City Ratner opened nine retailers and announced plans for a Lowe’s store to be built in 2016.
Hot meter: 9
Westchester’s industrial segment continues to boom, according to Friedland. “It is extremely, extremely tight. Rentals have gone up, sales prices have gone up to record highs. It’s only getting higher because of limited inventory,” he explains. “Industrial property could go from $12 to $15 per square foot as rental and $125 to $175 per square foot for sale. These are prices we’ve never seen before.”
Mack-Cali, which owns a total of 4.2 million square feet of space in the county, has seen significant improvements and increasing rents in the flex/industrial market. “We are 90-plus percent occupied in the flex portfolio and that’s truly become a landlord’s market in the last 12 to 24 months. I do not anticipate that changing. We are raising rates on that space,” Warner says. Most of the company’s 66 Westchester properties are combination office/other buildings in commercial parks in Elmsford, Hawthorne, and Yonkers. “Flex space is everything under the sun,” he explains. “It’s office, tech, industrial, lab, biotech—just about anything can find a home here.”
The entire industrial segment (including space for warehousing and manufacturing) totals more than 23 million square feet in the county, with a vacancy rate of under 10 percent.
Hot meter: 9
Closely related to the retail sector is another bright spot in Westchester, says the Econocmic Development Office’s Mooney: combination residential/office/retail development. “You have the approval of the Lennar development in White Plains, a $275 million project with 700 units geared toward empty nesters and young professionals. Ossining’s Harbor Square topped off in October. It has 188 waterfront units, a $65 million project. These downtown transit-oriented projects use a live-work-play model that touches so many different areas,” he says.
“Transit-oriented properties are the ones people are migrating to,” says Mack-Cali’s Warner. “We have approximately 600,000 square feet of office space within a stone’s throw of the transit-oriented planning area in White Plains, and we’re very excited about that.” One of the company’s major office complexes in the county is the Westchester Financial Center in White Plains (Mack-Cali owns two of the three buildings), which Warner says is slated for major capital improvements in 2016.
The former Boyce Thompson Institute in Yonkers will become a mixed-use complex.
Transit-oriented projects and/or studies are underway in Yonkers, White Plains, Harrison, New Rochelle, Mount Vernon, Ossining, Tarrytown, Mamaroneck, and Peekskill, according to Mooney. One that broke ground just before year-end is Rivertowns Square in Dobbs Ferry, a 17-acre shopping/living complex with a hotel, retail space, restaurants, and a multi-story apartment building.
“We’re big believers that mixed use is vital. We don’t want to live in silos anymore, where we live here, work there, and go shopping over there,” Leibler says. Simone Development is redeveloping the long-abandoned Boyce Thompson Institute in northwest Yonkers as an 85,000-square-foot mixed-use complex. “We’re going to have restaurants, retail, offices, and ambulatory healthcare,” Leibler explains. “Each of these things will support one another.”
Among the other mixed-use developments that may impact the market in 2016 is Chappaqua Crossing, the 120-acre site formerly occupied by Reader’s Digest Association, where owners Summit/Greenfield are looking for retail and office tenants while building/converting space into market-rate residences and affordable housing.
Dave Donelson lives and writes in West Harrison. He’s the author of numerous business books, including the Dynamic Manager Guides and Handbooks.