Despite the emptying out of the tallest privately owned building in the state north of New York City, Western New York’s office, industrial and retail markets are strong, according to new statistics released Thursday evening by the Buffalo office of real estate brokerage CBRE.
CBRE’s annual MarketView reports found the volume of open space in the region fell in two of the three categories, as strong demand for quality office and industrial space – driven by an improved economy – absorbed a lot of available space.
At the same time, the brokerage reported, a lack of new construction to replenish the inventory of manufacturing space means the industrial base isn’t growing. And some vacant buildings were redeveloped for entirely new uses, taking them off the market.
“Western New York’s economic base and overall demographic trends continue to position it as a conservative region for real estate investment, development and lending,” CBRE wrote.
There’s more empty office space in the region compared with a year ago, due to the downsizing of HSBC Bank USA’s presence in downtown Buffalo and law firm Phillips Lytle LLP’s move to One Canalside. Those two shifts resulted in more than 700,000 square feet of space being dumped on the market, as the former One HSBC Center – now One Seneca Tower – went from 95 percent full to 95 percent empty in a matter of weeks. As a result, the office vacancy rate jumped from 10.37 percent to 13.71 percent. The national vacancy rate was 15.1 percent.
That had been expected for more than a year and hasn’t affected other market activity, said Shana B. Stegner, director of office sales and leasing for CBRE. Office leasing in other parts of the region tightened, taking up some of the new slack, while new construction boomed.
“The activity is there. The momentum is there,” Stegner said. “When you look outside and see everything that’s happening, it’s not stopping anybody from following through with their plans.”
The vacancy rates for office, industrial and retail space in the region remained below national averages.
“Despite this challenge, if the momentum continues through 2014, the Buffalo office market holds promise of recovery and continued future investment,” CBRE said in the report.
Meanwhile, sales of existing apartment buildings rose by almost 40 percent compared with the previous three years’ average, while the total value of those sales rose by 27 percent. And more buildings are coming online, thanks to a mixture of new construction in the suburbs and adaptive reuse projects in the city.
“Buffalo and the surrounding suburbs are seeing a continued increase in adaptive reuse conversions and new building projects,” CBRE’s Robert Starcynski wrote in the multifamily report.
CBRE’s annual MarketView report is one of the most widely anticipated studies of the region’s commercial real estate market, providing a detailed snapshot of the region’s economic strength. The reports were released Thursday evening during a presentation in First Niagara Center. Developers added 873,000 square feet of office inventory to the market in the past year, including One Canalside, the Catholic Health System headquarters and Compass East in the city, and various office park expansions in the suburbs. And that doesn’t include projects that are still in the works, including 500,000 square feet under construction and 300,000 more square feet being planned for buildings such as Conventus and 500 Seneca St.
Industrial vacancies fell to a record low rate of 5.7 percent, down from 9.2 percent a year ago, as 2.48 million square feet was absorbed in the region – 1.5 million of it in the city, where the vacancy rate fell by two-thirds. Nationally, the vacancy rate is 11.7 percent, more than double that of Buffalo, and Buffalo is tighter on space than Cleveland and Pittsburgh. But new construction activity is slim, with only 110,000 square feet of new space last year, continuing a five-year trend that may drive lease rates and lease durations high enough to encourage new development, CBRE wrote in its report.
Among the upcoming local activity, Zaepfel Development is building a 307,000-square-foot facility in the Town of Tonawanda for candy and food distributor Wythe Will Tzetzo LLC, while TM Montante Development is constructing an 88,000-square-foot office and warehouse for FedEx, also in Tonawanda.
On the retail front, the vacancy rate of 11.57 percent is also down, to its lowest level in more than a decade, driven by a combination of attrition, redevelopment and adaptive reuse.
Meanwhile, downtown Buffalo is “hot,” CBRE said, with new restaurants, breweries and clubs opening up, while North Buffalo and Elmwood Village remain popular. “These shopping destinations are frequented by both locals and more and more Canadian shoppers, as Buffalo continues to evolve and reinvent itself,” CBRE said.
Finally, there were 179 sales transactions involving multifamily apartment buildings last year, with 2,688 units selling for a total of $105.6 million.
“Multi-housing has been commercial real estate’s strongest magnet for many years, drawing a wide range of investors, and was the first real estate market segment to see recovery,” the report said.