The Suburban Shuffle: Medical Groups, Media Hubs and Financial Firms Round Out a Healthy Tristate Market
Jotham Sederstrom Nov. 15, 2011, 2:22 p.m.
Connecticut Governor Dannel Malloy wasted little time in locking in four of the five companies he promised would bring the state more jobs under his so-called “First Five” plan, an initiative launched this year with the intention of luring new companies to the Constitution State with incentives.
Since it passed in May, Mr. Malloy has enticed national names like CIGNA, a global health services company, and TicketNetwork, an online ticket marketplace, to relocate. He also convinced ESPN to build a 93,000-square-foot building on its Bristol campus and the NBC Sports Group to set its sights on developing new offices in Stamford.
In exchange for staking claim in Connecticut, companies like ESPN receive the state’s “best” incentive and tax credit programs, provided that its owners pledge to create 200 new jobs over two years—or, if more time is needed, invest $25 million and create 200 jobs over five years. For most, such an offer couldn’t be taken lightly—especially for NBC Sports.
“I don’t know of another state with this formula,” said John Goodkind, a managing principal at Newmark Knight Frank who represented Starwood Hotels & Resorts in a blockbuster deal that will relocate the hospitality group from Westchester to Stamford next year. “Connecticut is literally like a business partner, and they’re like the tenant’s partner.”
But whether it’s precedent-shattering incentives, like those offered in Connecticut and to a lesser extent in New Jersey, or straightforward transactions like those in Westchester County and on Long Island, deals are being inked in New York’s tristate region at a positive clip, analysts said. From the deal in October to bring NBC Sports Group to Connecticut to a string of high-profile hospital transactions in Westchester, businesses are migrating to the suburbs at a reasonable rate, brokers said.
And while Manhattan remains the most alluring destination for many tenants, the suburbs managed to compete valiantly this year in the face of a sluggish economy. Below, The Commercial Observer takes a look at the tristate area’s other major markets.
In Connecticut, NBC Sports Group, which already broadcasts games for the National Football League and the National Hockey League, agreed to bring its sports group—including NBC Sports, NBC Olympics and Versus—to a 32-acre plot in Stamford.
There, NBC plans to build several state-of-the-art studios—including one for the NHL Network—while relocating 450 employees and creating hundreds of additional positions.
In exchange, the state will give NBC a $20 million loan through its Department of Economic and Community Development.
Such a Cinderella story is a break from recent memory in Connecticut, where officials received the scare of the century this summer when UBS, a formidable financial presence, briefly considered vacating its Stamford office, famed for its 93,000-square-foot trading floor.
Losing UBS, which had been operating in Stamford for 10 years, would have cost the state $70 million in annual tax revenue, Mr. Malloy said at an August press conference.
The company eventually agreed to stay in Stamford for five additional years in a deal that will retain 2,000 jobs and hundreds of thousands of square feet in Connecticut for the foreseeable future. In return, UBS will receive $20 million in state funds from Mr. Malloy, Stamford’s former mayor.
Mr. Malloy served as mayor of Stamford when Starwood Hotels & Resorts agreed to relocate its headquarters from White Plains to a 250,000-square-foot office at the Harbor Point development, an 80-acre, $3.5 billion mixed-use site in the city’s South End.
In exchange, Starwood received $75 million in tax credits and a $9.5 million loan from the state’s Department of Economics.
“We’ve said that Connecticut’s open for business,” said Mr. Malloy at a press conference announcing the TicketNetwork deal. “And what we’re saying to the entrepreneurial community, to the technology community, to anyone who can take that technology and entrepreneurial spirit [is] put them together, come up with a product, and bring it to market in our state. That’s what we want.”
And that’s what they’ve been getting. The county’s Class A vacancy rate dropped to 23 percent, its lowest since the first quarter of 2010. On average, asking rents clocked in at $32.10 per square foot through October.
Between its aggressive incentives policy and reasonable rents, Connecticut has surfaced as one of the region’s most appealing office sectors. As such, recruiting has been bold.
“They seem to be the most aggressive in going after tenants, especially tenants that are already in Manhattan, by giving them incentives,” said Mr. Sammons.
NORTHERN NEW JERSEY
In northern New Jersey—notably in Hudson, Morris, Essex, and Middlesex counties—a litany of financial firms have renewed leases even as new tenants have rushed forward.
Earlier this year, New Jersey Governor Chris Christie and other public officials convinced Panasonic to relocate from Secaucus to a new office tower on Raymond Boulevard in Newark with the help of a $102 million transit hub tax credit.
In September, Deutsche Bank inked a seven-year renewal at its 204,515-square-foot office space at 2 Gatehall Drive in Parsippany, where it has been since 2002.
Merrill Lynch, meanwhile, re-upped its 300,000-square-foot lease at 95 Greene Street in Jersey City. And after threatening to leave New Jersey altogether—an always effective threat, as aforementioned deals have evidenced—British publishing firm Pearson Education is planning a move from Upper Saddle River to a yet-to-be-built waterfront development in Hoboken. Pearson received $82.5 million in tax credits from the state.
As Panasonic and Pearson have proved, companies are showing renewed interest in New Jersey’s modern, rail-ready office portfolio, especially where it concerns urban locales.
“If you’re an owner of real estate in New Jersey and you’re sitting on that type of product, you’re going to be quite happy with your results,” said Gregory Barkan, senior vice president at CBRE, who added that tenants are choosing cities over the suburbs. “But if you’re sitting on that antiquated, kind of commoditized vintage-type product that seems to be pretty prevalent in New Jersey I think you have some heavy lifting.”
The vacancy rate for Jersey City has been low, currently standing at 9 percent. The asking rent for the area is $27.39.
Jersey City—which boasts 16.6 million square feet of office space out of the 20.7 million for all of Hudson County—currently has 8.1 million square feet of proposed new space in the pipeline, said Mr. Sammons. This bodes well for future tenants, but not for those who need space post-haste.
“They have no product available in the near term for a major tenant,” said Mr. Sammons. “They can build fast enough, faster than you can in Manhattan. But most of the development sites recently have been for residential and not for office.”
NASSAU AND SUFFOLK COUNTIES
Nassau and Suffolk counties, meanwhile, are waiting for the market to turn.
In Nassau, the county tallied a vacancy rate of 16.l percent, with an asking rent of $29.99. Deals like Astoria Federal Savings’ lease for 55,000 square feet of space at 1 Jericho Plaza in June have been decent-sized, but certainly nothing to write home about.
In Suffolk County, the vacancy rate clocked in at 18.5 percent, down from 20.8 percent in March. That drop has been an encouraging sign, but still a far cry from high 2007 levels.
“This is surely not part of the go-go years,” said Chuck Tabone, a managing principal at Newmark Knight Frank.
The most notable deal happened at 5000 Corporate Court, a 264,482-square-foot property in Holtsville in Suffolk County purchased by Government Properties Income Trust for $39.3 million in September. Located just off the Long Island Expressway, the asset is already home to the IRS and the Bureau of Customs and Immigration Services and boasts more than 37 acres.
Despite its accessibility, however, the building has failed to impress Big Apple tenants.
“[Nassau and Suffolk are] too far off the grid for tenants in Manhattan, unless they are a call center or something like that,” said Mr. Sammons.
Transportation is Westchester County’s Achilles’ heel. While the area has space for rent, the region remains a dead zone for commuters, with buses and trains relatively scarce.
The Westchester County vacancy rate ended up at 28.1 percent in October, up from 24.9 percent in September 2010. Meanwhile, asking rents continue to hover around $30, ending at $29.98 for the month of October.
The availability of 325,000 square feet of space—thanks, mostly, to the departure of Starwood Hotels & Resorts from two spaces on Westchester Avenue in White Plains—has caused the vacancy rate to soar above year-end 2010 levels, said Mr. Sammons.
Nokia’s announcement in April that it will shutter offices at 102 Corporate Park Drive in White Plains as part of its efforts to consolidate didn’t help matters either.
“It’s been a challenging office environment in terms of job growth and companies coming into Westchester, so one of the shining stars has been the growth of the medical practices and the adaptive re-use of former office space into medical space,” said Budd Wiesenberg, a vice president at CBRE.
Among the medical conglomerates now picking up the slack in Westchester is WestMed Medical, which has expanded across the county with a handful of high-profile deals.
In October, the group moved into a new 84,000-square-foot space in the Ridge Hill development in Yonkers, and during the same month it announced a new 28,000-square-foot space on Huguenot Street in New Rochelle. The selling point for the medical group was the Huguenot office’s relatively convenient location, located just blocks from parking spaces, a Metro-North train station and a Bee-Line bus stop.
Meanwhile, Memorial Sloan-Kettering received approvals to remodel 400 Westchester Avenue into a $143 million cancer treatment facility.
Other activity includes Acorda Therapeutics, a biotech company, leasing 138,000 square feet of space at 410 and 412 Saw Mill River Road in Ardsley. w Jersey, Starwood Hotels & Resorts, National Football League, UBS, Stamford, Connecticut, Hudson, Morris, Essex, Middlesex, Chris Christie, Panasonic, Pearson, Gregory Barkan, CBRE, Nassau, Suffolk, Acorda Therapeutics, 4
“I will say that health care has become a darling in Westchester,” said Frank Tomasulo, a senior vice president at CBRE who represented WestMed in both deals.
- 410 Saw Mill River Road
- Acorda Therapeutics
- Chris Christie
- Dannel Malloy
- Gregory Barkan
- John Goodkind
- National Football League
- nbc sports
- New Jersey
- Newmark Knight Frank
- Starwood Hotels & Resorts Worldwide