Costar’s year-end 2007 numbers indicate that the Westchester County industrial market is moving in the right direction for brokers and landlords. Costar reports that vacancy rates across the Westchester industrial market have fallen to 10.1%. Warehouse projects ended the year with a vacancy rate of 9.8% and flex space followed closely behind at a vacancy rate of 11.5%.
As any broker will tell you, these numbers do not paint a complete picture of the market. First and foremost Westchester is more well-known as a “white collar” county with much more office space than industrial space. Setting aside Costar calculation and reporting errors, more than half of the “available”
These industrial market constraints served building owners and brokers well in 2007. Brokers benefited from tenants having a hard time finding space on their own while owners gained from a favorable supply and demand equation. For example, Diamond Properties completed over 330,000 square feet of new deals at their recently purchased warehouse distribution facility in Mount Kisco. Over half of the 2007 space leased at the facility went through tenant brokers.
In search of higher ceilings, larger spaces, better parking many of these industrial tenants vacated the long constrained more typical locales of Westchester warehouse space. But don’t expect to find any landlords inclined to make cheap deals in these markets. Most of the warehouse space recently vacated was quickly leased by other growing industrial users forced to pay higher rents.
Coming off solid performance in 2007, the industrial sector is showing no signs of a slow down in 2008. Our customers have repeatedly shown that they’d rather find the perfect space to work in as opposed to making a less than perfect space, work. Brokers who take the time know the industrial market inside and out will be able to make a lot of industrial deals in 2008.
The office sector data tells a different story. Year-end 2007 overall office rental rates were up over the previous quarter, but vacancy rates were also on the rise. Costar reported that the average fourth quarter price per square foot for Westchester office space was $27.63 and brokerage house, Grubb and Ellis reported an overall office vacancy rate of 14.9%.
Both price per square foot and vacancy rate combined to create a stalemate in 2007 office leasing. Often it was the tenant that had to come up off their number to get the deal done.
In 2008 the Class A office properties located at major transportation hubs should hold their current rental values instead of continuing to increase while other Class A buildings will settle into position with rental rates significantly below those with better access to mass transit. The lower priced Class B office properties will likely see increased action as tenants look to relocate away from higher rent Class A and B properties. Local brokers more familiar with these buildings and their often non-institutional owners should have an easy time finding the right deals for their customers.
Medical and bio-tech companies will likely continue their steady 2007 demand growth through 2008. Medical and small bio-tech laboratory spaces became increasingly hard to find as 2007 reached a close with very little product being added to the market. The one place that bio-tech space may come to market over the next few years is at The Landmark at Eastview where Regeneron will be relocating out of their older space into new product that is being built for them now.
2007 was flush with deals for Westchester County commercial real estate brokers and while 2008 tenants may not be as expansionary, the versatile New York economy should continue to offer brokers the opportunity to make deals. It will be the local brokers who have extensive market knowledge and long standing relationships with Westchester building owners that turn 2008 into another profitable and successful year.
