Industrial, Office Investment Demand Rises in Westchester, Fairfield Counties
The investment markets for office, industrial and flex properties in Westchester and Fairfield counties have seen significant activity over the last 12 months. Both debt and equity capital have been flowing into the urban and suburban areas of the counties, demonstrating that these submarkets are viable alternatives to New York City.
This year has witnessed one of the largest transactions to ever take place in Westchester and Fairfield counties since we have been recording statistics. This past spring, HFF sold a portfolio of 52 industrial flex assets in multiple parks in both Westchester and Fairfield counties for $488 million, or $167 per square foot. The demand was very strong for these industrial assets, and the buyer pool spanned from private groups to some of the largest money managers in the world.
In addition, cap rates are in the 4.25 to 4.85 percent range for more traditional industrial product. Cap pricing is absolutely on track to surpass $200 per square foot, as there is a lack of available land for development and institutional funds’ continue to display an insatiable appetite for the product type. Consequently, these kinds of deals continue to dominate the conversations and market activity.
Office Market Interest
The suburban office market of Westchester and Fairfield counties is experiencing renewed interest from the capital markets investors. Leasing is improving with significant activity from WWE and Charter Communications in Stamford.
Office buyers have been more selective in their investment choices. There has been an increase in bids for suburban office deals, as yields in the 7.5 to 8.5 percent range for multi-tenant office assets are more attractive to investors compared to yields in the 4s and 5s for multifamily and industrial.
Multiple office buildings in Westchester are on the market and tour activity has strengthened. We are also valuing numerous office assets that are being considered for redevelopment as both multifamily and even potentially flex industrial product.
We have seen continued strength in the multifamily investment markets in both the Westchester and Fairfield areas. In some the southern Westchester towns like Yonkers and New Rochelle, there is record pricing and capital coming in from outside the New York area, as well as offshore money. In some cases, the market has seen multifamily assets fetch prices as high as $450,000 per unit on a sub-5 percent cap rate.
In the Stamford multifamily market, there continues to be liquidity and pricing for well-located assets. An older core-plus multifamily tower is trading for more than $350,000 per unit at a cap rate near 5 percent. Newer product will surpass $500,000 per unit and will have cap rates in the 4s. Offshore capital has been active in Westchester and Fairfield counties since investors from Asia and Israel have committed to purchasing property.
Investors looking at retail remain the most cautious given concerns about rent growth and tenant credit. Bankruptcies and consolidations continue to weigh on investors’ minds, and that has translated into higher cap rates since there has been less price discovery in this asset class.
Owners have been exploring ways to drive revenue in the short term, including examining the locations for potential multifamily additions on their excess land and leasing to non-traditional retail uses such as medical. Grocery-anchored centers remain high on investor’s lists, and there continues to be both debt and equity for that sector.
The overall outlook for retail remains positive, as new retail concepts are showing up across the suburban New York area and tenant credit continues to improve.
The remainder of 2019 should continue to see high levels of investment activity; several transactions are underway with year-end totals anticipated to be the highest transaction volume Westchester and Fairfield Counties combined have seen over the last 10 years. This is a result of the combination of substantial equity from all buyers’ classes, very low interest rates, product flow having increased and more capital looking in these submarkets as alternatives to New York City.
— By Jose Cruz, senior managing director, HFF. This article first appeared in the June-July issue of Northeast Real Estate Business magazine.