REAL ESTATE OUTLOOK WESTCHESTER/FAIRFIELD OFFICE MARKET THIRD QUARTER 2014 Vacant space decreases in Fairfield County Westchester County saw another quarter of negative net absorption The third quarter of 2014 saw opposite trends in Fairfield and Westchester County regarding vacancy rates. While the vacancy rate in Fairfield County decreased by 39 basis points, the same cannot be said in Westchester County, where it increased by 87 basis points. The average rental rates in both counties remained stable. ECONOM Y Economy grew at 4.6% in second quarter of 2014 According to the third estimate released by The Bureau of Economic Analysis, the real GDP grew 4.6% in Q2 2014. This is due to an increase in exports of nondurable industrial supplies & material and nonfarm inventory investment by motor vehicle dealers. The national unemployment rate in Q3 2014 was 6.1%, 10 basis points lower than Q2 2014. Professional and business services, retail trade and healthcare saw major job growth during the quarter. Connecticut saw an increase in nonfarm jobs of approximately 7,500 in Q3 2014. This is the second consecutive quarter of positive job growth after a decrease in jobs created in Q1 2014. Connecticut’s unemployment remains above the national unemployment rate although it’s seen a large decline from 6.8% in the second quarter to 6.5% in the third quarter of 2014. The highest increase in jobs was seen in the leisure and hospitality sector followed by trade and transportation over the last year. Financial activities and manufacturing saw a slight decrease in the job growth. VAC A N C Y Vacancy rates moved with a margin of 100 basis points across markets Continuous leasing activity along with no new supply led to a decrease in vacancy rates in the Fairfield County. As a result, the vacancy rate dropped 39 basis points to reach 16.15% in Q3 2014. Westchester County still saw sluggish growth and tenant activity in Q3 2014 and as a result, the vacancy rates climbed higher during the same period. The vacancy rate in Westchester County increased by 87 basis points and reached 15.2% in Q3 2014. T RENDL INES 5- YE A R TR E ND C U R R E NT Q UART E R W E S T C H E S T E R VAC A N C Y 15.2% Vacancy rate increase by 87 bps FA I R F I E L D VAC A N C Y 16.2% Vacancy rate drops by 39 bps WESTCHESTER ABSORPTION -220,839 SF Absorption rate continue to drop FA I R F I E L D A B S O R P T I O N 132,700 SF 13% drop in absorption rate WESTCHESTER ASKING RENTS $27.29 PSF Asking rents remain stable FA I R F I E L D A S K I N G R E N T S $34.79 PSF Rents increase by 1.1% remaining stable WESTCHESTER/FAIRFIELD OFFICE MARKET THIRD QUARTER 2014 ABSORPTION Drop in absorption across counties Leasing activity in the third quarter was subdued in both counties as compared to the Q2 2014. Most of the transaction activity was renewals. Fairfield County witnessed absorption of 132,700 SF, a 13% decrease over the earlier quarter. Westchester County also witnessed its third consecutive quarter of negative net absorption. Job growth occurred in leisure, hospitality and retail rather than non-office using sectors, reflecting subdued demand for office space despite increasing job numbers. The total net absorption in Westchester County was negative 220,839 SF. Notable Lease Transactions UNEMPLOYMENT RATE CONNECTICUT UNITED STATES COMPANY ADRESS SQUARE FEET LEASE TYPE XL Global Services 2 Harbor Point Stamford CT 23,919 New Lease Collier Halpern Gateway 1 White Plains, NY 20,000 Renewal 10% 8% 6% 4% R E N TA L R AT E S 2% 0% Stable rental rates across markets 05 06 07 08 09 10 11 12 13 14YTD SOURCE Bureau of Labor Statistics PAYROLL JOB GROWTH CONNECTICUT UNITED STATES 4% 2% 0% Sluggish leasing activity along with no new supply led to rental rates remaining stable in the third quarter of 2014. The average asking rental rate in Q3 2014 in Westchester County was $27.30 PSF. In Fairfield County the average asking rental rate was $34.80 PSF, a 1.1% increase from the earlier quarter. Unless there is a sudden increase in demand for office space, we do not expect the rates to rise significantly in the fourth quarter of 2014. Connecticut still lags behind in job growth in the office-use sector, in fact certain sectors like finance and insurance, utilities and employment services are witnessing a drop in job numbers over the last year. The office sector always follows at approximately a six to eight month lag to employment growth. -2% -4% 05 06 07 08 09 10 11 12 13 14YTD SOURCE Bureau of Labor Statistics P R O J E C T D E L I V E R E D/ U N D E R C O N S T R U C T I O N No new project delivered in Q3 2014 No new projects were delivered in Q3 2014 in Fairfield and Westchester County. However, 164 Mount Pleasant Rd - Building 1, a new medical office building, is expected to be delivered in December 2014 in Fairfield County. n CONTACT Palak Raval Researcher 212.537.7701 palak.raval@transwestern.com METHODOLOGY Chase Bourdelaise Director of Research 617.439.9313 chase.bourdelaise@transwestern.com The information in this report is the result of a compilation of information on office properties located in Manhattan. This report includes single-tenant, multi-tenant and owner-user Class A & B office properties 20,000 SF and larger. 67 Holly Hill Lane Greenwich, CT 06830 T 203.637.9300 F 203.698.1022 www.transwestern.com/northeast Copyright © 2014 Transwestern. All rights reserved. No part of this work may be reproduced or distributed to third parties without written permission of the copyright owner. The information contained in this report was gathered by Transwestern from CoStar and other primary and secondary sources believed to be reliable. Transwestern, however, makes no representation concerning the accuracy or completeness of such information and expressly disclaims any responsibility for any inaccuracy contained herein.