In the wake of a tumultuous 2023, Westchester County's commercial real estate market experienced a mixed bag of successes and setbacks. While healthcare facilities and multifamily housing witnessed growth, office buildings found themselves in the midst of a crisis, aggravated by the rise of remote work. However, as we enter 2024, some glimmers of hope are on the horizon. Industry experts and key stakeholders predict that healthcare development, which has become the backbone of Westchester's economy, will continue to flourish, while the markets for multifamily housing and industrial developments may soften.
Office Buildings Continue to Struggle
The pandemic has led to a decline in demand for corporate office spaces due to the prevalence of remote and hybrid work arrangements. In Westchester, approximately 26% of the 23 million square feet of office space remains vacant, with vacancies expected to persist. Kevin McCarthy, managing director at Cushman & Wakefield, emphasizes that tenants now require 20% less space on average compared to the recent past, which poses a daunting challenge for office building owners. However, McCarthy believes that quality, modern working spaces can still entice people to return to the office, although Westchester lacks sufficient options in this regard. Urging government intervention, he suggests that incentives be provided to landlords in order to revitalize outdated buildings.
Flourishing Healthcare and Medical Real Estate
Westchester has become an attractive hub for healthcare and biotech companies, with the county eagerly embracing their presence. Kevin Plunkett, director of strategic initiatives at Simone Development, highlights the expansion of major New York City hospitals into Westchester and their search for new facilities. Renowned healthcare systems such as Montefiore and Mount Sinai have already secured deals to establish offices in Yonkers and Hartsdale. Plunkett asserts, "There's a lot of exciting things going on in healthcare. We think it's going to continue," expressing optimism about further expanding the Westchester community through hospital systems.
High Demand for Industrial Properties
The e-commerce boom has fueled a high demand for industrial properties, predominantly warehouses and distribution centers in Westchester, as manufacturing facilities of the past have given way to this trend. While demand remains strong, availability is limited, with only 5% of these properties currently vacant, leading to increased prices. Ian Ceppos, executive vice president at JLL, points out that the cost of constructing new industrial spaces in Westchester is prohibitively expensive. As a result, more developments are taking place in neighboring counties like Putnam and Orange. Ceppos predicts that prices and demand will continue to rise in 2024, hoping that availability will eventually catch up.
Slowdown in Multifamily Construction
Construction of new apartment buildings thrived in 2023, with several residential structures sprouting up in Westchester's major cities, creating tens of thousands of apartment units. However, concerns have arisen about the market's ability to absorb such a substantial influx of units. Mark Stagg, founder and president of Stagg Group, calls for the construction of more affordable housing and smaller projects with double-digit units. Stagg predicts a softening in multifamily construction, asserting that developers will be more selective in 2024. With an ample pipeline of projects already underway, he believes that transaction on the residential side will remain relatively steady.
As Westchester County navigates the challenges and opportunities that lie ahead, it is evident that the healthcare sector continues to be a driving force in the local economy. While office buildings face an uphill battle, efforts to revitalize outdated structures and adapt to the evolving needs of tenants may help turn the tide. Industrial properties, driven by the surge in e-commerce, remain in high demand but face limited availability. Multifamily construction, while still active, may experience a slowdown as developers prioritize affordability and smaller-scale projects. As we venture further into 2024, these dynamics will continue to shape the landscape of Westchester's commercial real estate market.
Caption: Betsy Buckley from JLL, moderates a panel discussion during the Building Owners and Managers Association of Westchester (BOMA) as they discuss commercial real estate trends, Jan. 11, 2024 at the RECKSON offices in White Plains. Panelists included from left, Ian Ceppos, JLL; Kevin Plunkett, Simone Development Companies; Kevin McCarthy, Cushman & Wakefield and Mark Stagg, Stagg Group.
