Fairfield's strength will fuel Westchester rents and stability

Real Estate Weekly, June 3, 1998 by Scott H. Benson

Class A spaces rent for $17 to $19 per square foot (psf) in New Rochelle; for $20 to $24/psf in Mamaroneck/Harrison and its environs; for $23 to $25/psf in Rye and Rye Brook; for $33 to $40/psf in Greenwich, and for $32 to $36/psf in Stamford.

The Westchester office market historically has been impacted by two key external marketplaces: New York City and Fairfield County. As rents have escalated in New York City, a larger percentage of companies have opted to look for cost alternatives in the Greenwich, Stamford and Norwalk environs. As this market absorbed its available space, Westchester became a cost-effective alternative, with available space to satisfy the demand.

Presently, the disparity between the two counties' overall office vacancy rates are between seven and nine percent, with Westchester hovering at approximately 16 to 18 percent, and Fairfield County between seven and nine percent.

The more predominant factor responsible for the increase in the effectuated Class A rental rates within the Westchester marketplace has been due to the recent and pending REIT acquisitions by Reckson, Rye; Gabelli Funds acquisition of the Companion Life property, also in Rye; Coke's 50,000 square-foot transaction in Hawthorne; and Starwood Lodging's 200,000 square-foot acquisition of a former IBM property in Rye Brook. These secured or pending transactions may be the ultimate catalyst for speculative development in the very near future.

Three key indicators of such development being economically viable are:

* The lack of large blocks of space in excess of 100,000 square feet that are presently available within Fairfield County;

* Rents, which are presently stabilizing within Westchester in the low- to mid-$20's; and

* Floor area ratio (FAR), or acquisition prices for smaller user sites sustaining the development potential of between 10,000 and 20,000 square feet, are trading in and around the $50 per developable foot range.

As Westchester's average rents hit $25 to $26/psf before electric, and the five existing large blocks of both direct and sublease space presently on the market - the 600,000 square-foot former General Foods Headquarters; Ciba Geigy's 120,000 square-foot sublease in Tarrytown; Mack-Cali and other institutional buyers. Through strategic Class A acquisitions within the mainstream commercial corridors, they have been able to artificially create a rental rate "floor" within the overall marketplace that has spilled over to the larger portfolio and single-building owners.

Presently, the "floor" county-wide for Class A office properties outside of the White Plains central business district (CBD) is approximately $22 to $24.50/psf, and in downtown White Plains CBD, it is between $23,50 and $26/psf.

The most recent examples of backfilling and recent acquisitions of formerly vacant properties and large blocks of space that have been absorbed are: Lillian Vernon's 65.000 square-foot lease and Mobius Management's 48,000 square-foot lease in PepsiCo's 500,000 square feet in Somers; the 160,000 square-foot 287 Corporate Plaza in Greenburgh; and over 70,000 square feet at 287 Bowman Avenue in Purchase - are absorbed, the following five sites will probably be the first slated for development:

* The Reckson Executive Park, formally known as Royal Executive Park, in Rye Brook, which maintains the ability to develop up to an additional 345,000 square feel in either tow or three separate buildings;

* The retrofitting and refurbishment of the 102,000 square-foot 102 Corporate Park Drive property by the EastRidge portfolio;

* The development of the former Premier Theater site by Reckson in Tarrytown, which is approved for two buildings totaling over 330,000 square feet: