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Manhattan vs. Westchester: A Case Study of One Non-Profit’s Dilemma

Recently I was contacted by a non-profit organization whose lease will be expiring soon.  

Manhattan vs. Westchester: A Case Study of One Non-Profit’s Dilemma by George Grace

The current space: Signed at the nadir of the Great Recession in 2009, the current price paid by the tenant is $25 per square foot. Meanwhile, new tenants are paying $55 per square foot. The space had been built out by the landlord and was as perfect as a space can be. The tenant, a non-profit, is now expressing a desire to have its own building, because they do medical research. In fact, the current space is preventing them from doing as much research as they would like.

The task: Determine an ideal location: Westchester County or Manhattan.

This is an interesting case for several reasons. The New York City market has had several extreme swings in the last 20 years, basically following the stock market:

  • In 2001, the real estate market went down at the end of the dot-com boom.
  • From 2007-2010, the real estate market went down because of the financial crisis.

In between these periods, the market experienced wild mood swings, with properties in Manhattan tripling in value at one point. The other macroeconomic factor that affects all this is interest rates: In the last 20 years, interest rates for a 10-year treasury went from 18% to less than 2%, which also has an impact on values.

When comparing the values in New York City to the values in Westchester, the first thing to consider is the sheer size of the Manhattan market: 400-500 million square feet of inventory. In contrast, Westchester is a 30-million square foot market, but the rents in Westchester are remarkably stable, basically running $25-$30 per square foot for the last 20 years. The one factor that has had an effect on rents in Westchester is interest rates—whereas, in New York, prices went from $25, 20 years ago, to $80 rents today. While rents have tripled in Manhattan, this has made Westchester a viable option.

For the tenant in this situation, the caveat to choosing Manhattan is the specter of rents tripling at the time of lease renewal.

For a nonprofit that’s looking at its bottom line and wants to ensure a cost for the next 20 years, being able to predict the cost of real estate is an attractive prospect.

The result: The tenant is still in the process of reviewing their options. Real estate is often an afterthought to an organization’s operation or mission, but real estate tends to be the catalyst to answer those operational and goal-oriented questions that a company or nonprofit would have.  

The moral of the story is that markets in very close proximity to each other can have completely different profiles. Interest rates, growth in the economy, and zoning changes can all change rental rates. That is why having the advice of a broker who knows the market, is active, and focuses on the tenant is so vital.

If you have questions about the market in Manhattan or Westchester, contact me to learn more.

George Grace

George E. Grace
G.E. Grace & Company, Inc.
232 Madison Avenue
New York, NY 10016
646-312-6800