Westchester, Fairfield markets get hotter and hotter

Real Estate Weekly, June 3, 1998 by Jeffrey H. Newman

Among the factors contributing to their appeal are good quality school systems, an educated and technologically-skilled labor pool, and the availability of attractive middle- and upper-income housing in desirable neighborhoods.

In lower Fairfield County, corporate relocations from New York City, particularly among financial services companies and companies in the maritime, publishing, and marketing/advertising industries, constitute just one of the forces driving the growth in the commercial real estate marketplace. The recent spike in rental rates for Class A space in Manhattan has prompted some well-established organizations to migrate to Stamford and its surrounding shoreline communities, which provide easy accessibility to New York City. In addition, growth within Fairfield County has been fueled by the internal expansion of the former "start-ups" of the late '80s and early '90s, many of whom have now emerged as stable, mid-sized entrepreneurial powerhouses with broader-based operations.

As a result of these developments, lower Fairfield County is experiencing a crunch for Class A space which, in turn, is producing a continuing round of escalating rents that are driven even higher, on occasion, by bidding wars among competing users.

Many savvy companies already located in southern Fairfield County are now shifting their focus to towns in the less expensive central and northeastern pans of the county, such as the Norwalk-Wilton and Trumbull-Shelton submarkets. There, they can more easily find suitable blocks of contiguous space located within shorter commuting distances from communities with more affordable housing in which the majority of their employees reside, at rental rates generally ranging from 10 to 20 percent less than in the Stamford CBD. And several corporations whose initial ventures out of Manhattan had taken them to Stamford have recently, upon expiration of their lease terms, opted to relocate to the central and northern tiers of the county.

For developers, upper Fairfield County's major appeal lies in land, taxes, housing and labor costs that are less expensive than Stamford's. Since land is more plentiful than in Stamford, developers can more easily build in "phases," which lowers the risk inherent in speculative building.

Fairfield County is likely to continue prospering in years to come, as the State invests in high-speed rail systems with additional tracks, meaning more frequent and faster interstate and intrastate trains. Other measures either already under way or seriously under consideration to reduce congestion on the county's major roadways include expanding permit parking at train stations; adding more and larger rail passenger cars to Metro-North trains; providing high-speed ferry service to New York; shifting some truck freight to rail freight via intermodal freight trains; and government/employer income tax or compensation-based subsidies and incentive programs to encourage use of mass transit

In addition, the majority of Fairfield County businesses are technologically-advanced, which means employees will likely have greater opportunities for telecommuting and flex-time schedules, reducing county-wide traffic.

While Fairfield County is red-hot, temperatures have just begun rising within neighboring Westchester County, NY. The recent comeback in the Westchester County commercial real estate market has been especially pronounced along the so-called "Interstate 287-East" corridor between the Hutchinson Parkway and downtown White Plains, and has been driven more by the business success and growth of existing small and mid-sized tenants than by corporate relocations from New York City. Given the dearth of large blocks of space in southern Fairfield County, and with rental rates for space in Westchester County trading at discounts of 15 to 25 percent relative to rental rates for comparable product in southern Fairfield, Westchester is well-positioned for spillover from neighboring lower Fairfield County.

Westchester also has an oversupply of outmoded Class B buildings that lack the technological infrastructure needed by today's leading industries. While indeed the market is hot for "Platinum Mile" and other well-located buildings with the potential to be upgraded and subdivided for occupancy among multiple tenants, much of the available space in Westchester County, and particularly in downtown White Plains, is suitable only for very large tenants. With so many large blocks of Class B space available for acquisition and redevelopment at discounts to replacement cost, Westchester is unlikely to be able to support speculative commercial construction at any time in the near future.

Celebrating this "boom" market in Fairfield and Westchester is certainly in order, but caution should not be thrown to the wind. While Class A space is scarce in the suburbs of lower Fairfield County, there is still an ample supply of Class B space in the Central Business Districts of Westchester and Fairfield counties, and an abundance of subleasing opportunities often the result of mergers and acquisitions that are forcing many companies to vacate their accommodations long before their leases expire - which are helping to hold the line on rents and absorption rates for Class A accommodations, and threatening the viability of speculative development. As well, the fact that several recent leases of large blocks of space have been used as "filler spaces" for short durations - with lease terms of only three to four years - also shatters the myth of Fairfield and Westchester as markets without limits.