Fairfield remains strong, Westchester looks positive - real estate industry - Mid-Year Review and Forecast, Section II

At mid-year, the Fairfield County office market is faced with the challenge of sustaining strong leasing activity while coping with an acute shortage of prime office space in the lower half of the county. The market began the year with more than a million square feet of space absorbed in the first three months and availability rates ranging from about 7.5 percent to just under 14 percent in the submarkets.

Rental rates in lower Fairfield County have inched up to the mid-$30's level, prompting serious talk of speculative office construction in downtown Stamford, where four major office projects are ready to go.

Although Stamford began the year with more space vacated than leased, this should change dramatically when the sale of the GTE Building to Zurich Reinsurance is completed later this year. The GTE Building comprises one quarter of the available space in Stamford and its removal from the available supply should result in positive absorption and a significant decline in Stamford's availability rate.

The REITs continue to flex their muscles in Fairfield County. Reckson Associates Realty Corp. acquired Stamford Towers, adding to a portfolio that already includes Landmark square. More acquisitions by REITs are expected before the year is out.

Elsewhere in the county, the Greenwich office market is extremely, tight with availability rates for Class A space below 5 percent. Companies unable to find space in either Stamford or Greenwich are looking to the Shelton-Trumbull market or across the border to Westchester County, NY.

The Shelton-Trumbull market is enjoying steady leasing activity, thanks largely to expansions by existing businesses, notably Unilever/HPC, USA, Inc., Playtex Products, Inc., and NASDAQ, which completed its 128,000 square-foot building expansion.

The Fairfield County office market continues to find new ways to grow. For example, Cendant Corp., which was unable to find enough space for its fast-growing workforce in Stamford, announced during the second quarter of the year that it was moving to a built-to-suit headquarters building in Wilton.

Westchester Market

The Westchester County office market is on target for a positive first half. The first quarter of the year, traditionally a slow period for the market, was on the same fast pace as the last quarter of 1997. In fact, more than 800,000 square feet of space was absorbed in the county during the last quarter of 1997 and the first quarter 1998. There has been some slowing during the second quarter, but this year's first-half results should exceed the first half of 1997.

So far this year the county has seen a number of major transactions, one of the largest of which was Starwood Hotels and Resorts Worldwide's sublease of 76,836 square feet at 777 Westchester Avenue in White Plains from Procter & Gamble. This transaction, in which Insignia/ESG represented Procter & Gamble, will result in up to 200 employees relocating to the building. The market's other major corporate lease transaction was Lillian Vernon Corp.'s lease of 65,000 square feet at 1 Theall Road in Rye. The company moved its headquarters from New Rochelle.

The area's REITs - Reckson Associates Realty Corp. and Mack-Cali - continued to build their portfolios in Westchester County. Reckson, which last year bought the Royal Executive Park in Rye Brook and the Christiania Building in Tarrytown, acquired the office properties of Cappelli Development, which includes the Summit office park in Mount Pleasant and Courthouse square in downtown White Plains. The REIT buying spree should continue throughout the year, with the next likely acquisition to be The Principal Financial Group's office properties along the "Platinum Mile" of I-287.

New construction in Westchester is primarily built-to-suit properties. IBM has occupied its new headquarters facility in Armonk and has decided to retain its old headquarters for additional growth. Also in Armonk, Swiss Re America is nearing completion of its new North American headquarters on King Street. The 300,000 square-foot complex is expected to be completed by early 1999.

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