Before he left New Rochelle, former Development Commissioner Michael Freimuth shared with me this letter and analyst report on the commercial real estate market in Westchester. I had meant to include this information in a larger piece based on an interview with Freimuth on the view he expressed at an IDA meeting that he would like to see New Rochelle grow commercial real estate as a large part of its overall “portfolio”. He explained the difficulties, especially in the context of the request by Capelli Enterprises to be able to lease first floor space in Trump Tower, previously reserved as retail-only by the City, as commercial space. That was approved but the tenant (Sound Shore Medical Center) backed out of the deal.
Here is the cover letter. The letter and report from Cushman & Wakefield are here.
I share it here because I think it informs, to some extent, the constraints that exist for developing Echo Bay as commercial space as some have proposed in response to the unpopular Forest City/Ratner plan for residential with a minor retail component.
December 5, 2011
Mr. Joseph V. Apicella
Executive Vice President
Capelli Enterprises
Email: joea@capelli-inc.com
The Westchester County, N.Y. commercial office market is poised for more of the same 2012 and 2013. There will continue to be significant downsizings both within the county, by existing businesses, and relocations or consolidations outside of the county by businesses that have a global or international footprint to flee N.Y. taxes and labor costs.The average size lease in Westchester has been dropping for several years, currently =/- 6,000 sq.ft. is the average size lease transaction in Westchester which is why we continue to see negative absorption levels. When Westchester’s largest employers, (County of Westchester, Hospitals, IBM, Kraft, Morgan Stanley) downsize, it takes a tremendous amount of positive transactions to back fill their space. We unfortunately see this trend continuing.
In order to lease 100,000 sq. ft. in the Westchester Market, you will require a minimum of four (4) years lead time based on today’s absorption levels. There are several challenges today to leasing office space in downtown New Rochelle. The County currently has a vacancy rate of 17% and we believe it will rise based on Nokia leaving the county and several other corporate downsizings to be announced over the next 12 – 36 months.
In short, to lease any large amount of space in this county, especially in this business environment, with the amount of direct space and shadow space available, is difficult. Leasing a large block of space in a short time frame should not be considered possible.
Sincerely,
Christopher O’Callaghan
Senior Director
Cushman & Wakefield Inc.
