By John Jordan
WHITE PLAINS—A team of commercial real estate brokers from the New York City/Hudson Valley market that were part of a recent virtual panel hosted by the Hudson Gateway Association of Realtors were upbeat about many sectors in 2022, particularly the industrial, flex, healthcare and medical office segments.
The region’s office market remains troubled as many businesses and building owners continue to contend with work at home programs and preferences by many employees to engage in hybrid office models that only require working at the office a few days a week. One broker, in particular, related that the region’s commercial markets are “facing a new paradigm” while another predicted some radical changes for the Westchester County office market are on the horizon.
The HGAR Commercial Investment Division program held on Jan. 27 featured panelists: Paul Adler, Chief Strategy Officer, Rand Commercial; William Cuddy, Executive VP, CBRE; Tom LaPerch, Director, Commercial Group, Houlihan Lawrence Commercial and Kathy Zamechansky, President & Broker, KZA Realty Group. The program was moderated by CID President John Barrett, who is the Managing Director Investment Sales of RM Friedland.
Rand Commercial’s Adler said it “was the best of times and the worst of times” when it came to which segments of the Hudson Valley’s commercial market performed well or poorly in 2021.
He said the industrial and flex markets were “hot to the touch” and the medical office segment also experienced an uptick in activity, despite the pandemic. While the region’s office market struggled last year, he said there are great opportunities that now exist in the land development sector.
“What COVID and now the Omicron variant and whatever comes after that have taught the retail market, the commercial markets is that they have to deal with the new paradigm,” Adler said. “It is not going to go back. We need to go forward in a very different way and I think we are seeing the smart landlords, owners and developers gearing themselves to understanding that COVID is not going away.”
He said that while COVID eventually may be treated differently, perhaps similar to the flu where people receive one shot a year, the public has changed their lifestyle in response to COVID. For example, he said, “I don’t know if people believe they really have to be in the office five days a week anymore.”
Houlihan Lawrence’s LaPerch said that COVID has opened up a number of different opportunities for real estate investors and users. Due in part to the exodus from New York City that provided a major lift to the residential market in Northern Westchester and the Hudson Valley, LaPerch said that there is strong demand and activity for logistics centers, e-commerce operations as well as second-generation restaurants.
“The northern area (of Westchester and Putnam counties) has arrived along I-84 and even north of that,” LaPerch said. “We are seeing even in the towns that were kind of bypassed for development, because of the COVID influx of people coming through…they are starting to be found for opportunities.”
CBRE’s Cuddy said the vacancy rate for the 28-million-square-foot Class A and B sector in Westchester County is 22.6%, which means approximately 6 million square feet currently sits vacant.
Offering a deeper dive on the vacancy, Cuddy noted that approximately 20% of the overall space is categorized as owned-space with no vacancies. “When you eliminate that (owned-space) from the calculation, your vacancy rate is closer to 30%. That is the real story,” Cuddy said.
He continued, “We need to have 2 million square feet of positive net absorption. Now that could be through companies moving out, or changing their office to research and development or medical and we need 2 million square feet to be eliminated from the (county’s office) stock altogether.” Cuddy said that the combination totaling 4 million square feet taken out of the market would bring the county’s office market to equilibrium and would foster price balance for new office construction.
“With what is happening and trending, the discussion about getting to equilibrium wasn’t even possible to have five or 10 years ago,” Cuddy said. “It is a realistic question now and I think it is on the horizon in the next two, three or maybe four years.”
He did note that due to the diversity of the county’s commercial market, there is increasing demand and positive momentum going forward this year, while hospitality and retail continue to struggle.
KZA Realty Group’s Zamechansky said the Bronx’s industrial market was very busy in 2021, despite the coronavirus and activity remains strong so far this year.
She noted that because many Bronx residents do not utilize e-commerce venues as much as others outside of the borough, conventional bricks and mortar retail in the Bronx is thriving. Zamechansky noted that retail hubs at Fordham Road, Pelham Parkway, White Plains Road, Burnside Avenue, Jerome Avenue and Bay Plaza were all quite active last year.
“I think we are going to do pretty good in 2022,” she said. “I am optimistic.”
National Outlook for Commercial Improves
The HGAR commercial panel’s mostly upbeat view of most segments of the commercial market in the Bronx and Hudson Valley region mirrors those of Cushman & Wakefield on the national level.
Kevin Thorpe, chief economist for C&W during the brokerage firm’s webinar entitled “Nearing the Other Side of the Pandemic—What’s Next?” said, “We see momentum on the other side of this. The economic data remains very strong. The economy is creating lots of jobs and demand for property is strengthening across most markets and what we are learning is that the commercial real estate sector and the broader economy are becoming more resilient to these (COVID) outbreaks and each wave has been followed by a surge of activity.”
He continued, “As Omicron fades, the commercial real estate sector, which actually started to boom last year, in our view is poised to take off again."
