Westchester's corporate office buildings face a crisis, while medical real estate grows
For the commercial real estate market in Westchester County, 2023 was a mixed bag.
Heath care facilities continued to expand. Multifamily housing seemed to rise by the day. Demand for industrial properties remained high.
Office buildings, though, remained in crisis, exacerbated by the growth of remote work.
But some changes may be coming in 2024. Developers, commercial building owners and managers predicted on Thursday at an event hosted by the Building Owners and Manager Association of Westchester that healthcare development — increasingly the backbone of Westchester's economy — will stay strong, while the markets for multifamily housing and industrial developments may soften.
For outdated corporate office buildings, though, there are no easy answers.
More: Westchester homes sales plunged in 2023, with prices and mortgage rates high
Office buildings continue facing a crisis
Remote and hybrid work have kept demand for corporate offices low since the pandemic.
In Westchester, about 26% of 23 million square feet of office space is vacant, and vacancies are likely to continue, said Kevin McCarthy, managing director at Cushman & Wakefield. He said tenants now need 20% less space on average than in the recent past.
“It’s daunting. We're in a crisis,” McCarthy said.
He said quality, modern working space can still bring people back to the office, based on data collected over the past three years. But Westchester does not have enough.
"In Westchester, we haven’t built new office buildings since I was three years old,” he said.
He said governments need to provide incentives for landlords to improve outdated buildings.
“Something needs to be done," McCarthy said. "In Westchester County, we got quality infrastructure, healthcare, industrial properties. But we do not have quality offices. If we don’t do it, you’re going to look at mountains of defaults.”
Healthcare and medical space continues to grow
Westchester has become an attractive spot for healthcare and biotech companies, and the county is anxious to welcome them.
Kevin Plunkett, director of strategic initiatives at Simone Development, said some major hospitals in New York City are expanding to Westchester and looking for new facilities. For example, renowned healthcare systems like Montefiore and Mount Sinai have closed deals to open offices in Yonkers and Hartsdale, he said.
“There’s a lot of exciting things going on in healthcare. We think it’s going to continue,” Plunkett said. “We’re very positive about being able to expand the Westchester community even more with the hospital systems.”
Demand for industrial properties remains high
Industrial properties have been in high demand amid the e-commerce boom. In Westchester, they are predominately warehouses and distribution centers, compared to the manufacturing facilities of the past.
While demand remains high, availability is limited. Only 5% of these properties are vacant, which has driven up prices.
The dilemma is that it's too expensive to build new industrial spaces in Westchester, said Ian Ceppos, executive vice president at JLL. Therefore, more are being built north in neighboring counties like Putnam and Orange.
He predicted that prices and demand will continue to rise in 2024.
“Hopefully availability will start to back up. Nothing but good stuff for industrial,” he said.
Multifamily construction to slow down
Construction of new apartment buildings continued to boom in 2023. Hundreds of residential buildings continue to be built in Westchester's major cities, creating tens of thousands of apartment units.
A major concern is whether the market can absorb so many units, said Mark Stagg, founder and president of Stagg Group.
He said developers need to build more affordable housing and smaller projects with double-digit units. He predicted multifamily construction to soften.
“I think developers will be very selective in 2024,” he said. “The transaction is going to be flat on the residential side. There’s enough in the pipeline.”
Helu Wang covers development and real estate for The Journal News/lohud and USA Today Network. Reach her at hwang@gannett.com.
This article originally appeared on Rockland/Westchester Journal News: Westchester NY outdated corporate office buildings vacancies grow
