Real Estate Broker’s Forecast Sounds Alarm on Office Sector

By JOHN JORDAN – February 2024

WHITE PLAINS—A panel of real estate brokers and developers offered a candid and unvarnished assessment of Westchester County’s multifamily, industrial, medical and office markets heading into 2024.

BOMA Westchester held its Annual State of the Market luncheon at 360 Hamilton Ave. last month in White Plains where a panel offered mostly positive insights and projections for a number of commercial real estate sectors this year—with the one exception being the office market, which was described as “in crisis.”

The panel featured Ian Ceppos, executive vice president of JLL; Kevin Plunkett, director of Strategic Initiatives at Simone Development Companies; Mark Stagg, CEO and founder of the Stagg Group and Kevin Mc- Carthy, managing director of Brokerage Services with Cushman & Wakefield. The panel’s moderator was JLL Senior Vice President Betsy Buckley.

Office Market ‘in Crisis’

Mr. McCarthy of Cushman described the current difficult conditions in the office market by noting that the Westchester County office market now consists of approximately 23 million square feet, down from about 30 million square feet a decade ago as some outdated office buildings have been repurposed for other uses. Of the total 23 million square feet of available space in the county, approximately 6.0 million square feet is vacant, which calculates to about a 26% countywide office vacancy rate.

Since the end of the pandemic, Mr. McCarthy said that typical tenants now need approximately 20% less space than they had in the past. He said that trend over time could mean another 4.5 million square feet of vacant space in the future. Mr. McCarthy said of the prospect of about 10 million square feet of vacant space: “It is daunting and it is a crisis.” Part of the office market woes is the continued struggle with return to the office efforts by area businesses.

Tenant demand for Class A office buildings in Westchester County, such as 360 Hamilton Ave. in White Plains (above), remains strong.

Mr. McCarthy said the trend appears to be that employees are returning to work for Class A space. “If you have true trophy Class A (space) you will going to be fine. The problem in Westchester County is we don’t have enough of that,” he shared.

He continued, “We are going to look at a lot of (loan) defaults taking place.”

Mr. McCarthy said the Class B, C building or the underutilized suburban office park “needs to be something else.”

He related that while some office space should be repurposed, he believes new Class A trophy product must be built or improved and government should provide incentives to spur new office development in the county or finance improvements to existing office product.

“Something needs to be done because in Westchester County we have had an amazing experience of quality being so high,” Mr. McCarthy said. “We have quality infrastructure. We have quality health care; ‘we now have quality industrial. We do not have quality office and we need it because we know that is what works. If we don’t do it, we are going to be looking at mounds and mounds of defaults and unfortunately no need for commercial office space.”

Public’s ‘Love Affair’ With Multifamily

Housing developer Stagg said that despite the addition of new product, most of the available apartment space in major markets like White Plains and New Rochelle are being leased. He noted that recently built product like The Mitchell in White Plains currently has a 93% occupancy rate. The newly completed 300-units adjacent to the 1133 Westchester Ave. office park in White Plains already has an 85% occupancy rate, Stagg noted.

Mr. Stagg believes that the White Plains residential market will be able to absorb the new product on-line now and in the future. “It seems like the public has a love affair with new construction and they (new buildings) rent. Some take longer than others,” Mr. Stagg noted.

He said that while rising construction costs and interest rates impacted developers bottom lines, many projects are years in the making and will move forward. “We are going to have to absorb it and it becomes a longer recovery period,” he said.

Mr. Stagg noted that his firm is currently engaged in a partnership with Simone Development on a three-phased mixed use project in New Rochelle that will include a 186-unit, 24-story multifamily tower that will be finished in the second quarter of this year. Stagg’s pipeline includes a 99-unit development in Port Chester in the approval process; a 150-unit development on Grant Avenue in Harrison; a 350-unit proposed affordable housing development currently in the zoning process in Yonkers and a 265-unit affordable housing project in the South Bronx.

Strength of Industrial Market

JLL’s Ceppos noted that the availability rate for industrial space is currently at approximately 5%. The “non-sexy” industrial market has seen rents skyrocket of late. Mr. Ceppos noted that rents prior to the pandemic ran anywhere from $8-a-square-foot to on the highend $13-a-square-foot, triple net.

Today, rents are averaging in the low teens on the low end to the mid-$20s on the high-end. He cited simple economics for the dramatic rise in rents—very little product, scarce availability and high-demand fueled by the pandemic and e-commerce.

Due to the strong demand for distribution space, Mr. Ceppos noted that the market is starting to see new industrial product being proposed or built in locations north of Westchester County, including Putnam County.

Bullish on Health Care

Mr. Plunkett said that inflation, union agreements and nursing shortages have proved challenging for health care institutions, but Bronx-based Simone is bullish on the health care sector due to demand.

One significant trend is that health care institutions are turning to developing new ambulatory care facilities. “People are looking for new facilities that are convenient, that are clean and that are easy to get to,” he said.

In late 2023 Simone Development announced it had closed on the purchase of One Executive Blvd. in Yonkers and plans to convert the 112,000-squarefoot existing office space into a medical facility.

One Executive Blvd. complements the North Yonkers Medical Mile that includes Simone’s highly successful Boyce Thompson Center. The 85,000-square-foot mixed-use center features physician’s offices of St. John’s Riverside Hospital, Westmed/Summit Health, ENT & Allergy Associates, Columbia Doctors and other medical practices along with retail shops and restaurants. One Executive Boulevard also neighbors Simone Development’s 1034 North Broadway, a 25,000-square-foot, recently renovated multi-tenant medical building that includes Northwell Health as well as Trust Specialty Pharmacy, the first pharmacy and drug compounding retail location in Yonkers.

Other well-known healthcare providers within the North Yonkers Medical Mile include St. John’s Family Medical Practice, Elizabeth Seton Children’s Center, Riverhill Radiation Oncology, and Northway Medical Center.

“Over the last five years, health care has provided a great deal of the leasing activity here in Westchester County and we are optimistic that will continue to happen,” Mr. Plunkett said.

He concluded that Simone is also developing a 40,000-squarefoot pad site at the Edge on Hudson development in Sleepy Hollow. The company is currently in talks with one of its health care system partners on whether they would like to set up operations there. 

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