Buffalo's downtown office space vacancy rate has skyrocketed to 24.4 percent -- the highest percentage in at least eight years -- statistics from the Building Owners and Managers Association of Buffalo show.
A seven-percentage-point jump in the past year indicates that Buffalo finally is experiencing the depths of an office leasing slowdown that has gripped many of other cities across the nation for well over a year.
The building owners' annual survey actually lists the vacancy rate at 19 percent, but with two very important footnotes, said Cheryl Hart, owner of Niagara Frontier Realty and chairperson for the survey.
"I didn't include about 260,000 square feet of Empire Tower, which formerly was occupied by Empire Federal Savings Bank and Moot & Sprague, because, while we know it will become available, the owners have yet to receive official notification," Ms. Hart said. "And, while the second Key Center tower, 180,000 square feet, is up, it remains a shell, and Citicom has said the building will not be completed until it has signed leases for 50 percent of the tower."
Empire's local operations were absorbed by M&T Bank and Key Bank of Western New York. It remains unclear which entity will take its office space. Hammerson Management Corp., owner of Empire Tower, has said it will sue the Resolution Trust Corp., the federal agency that took over Empire, if it attempts to force Hammerson to take the excess space.
Moot & Sprague has withered through numerous attorney defections and needs little of its former space.
Even at 19 percent, the downtown vacancy rate is the highest in more than 5 1/2 years and the 24.4 percent mark easily surpasses March 1985's 20.05 percent figure as the highest since the building owners began charting downtown office space eight years ago.
The figures place Buffalo in rarified company. The Coldwell Banker commercial office vacancy index, as of Sept. 30, indicated the nationwide downtown vacancy rate was 17 percent, with 16 of 47 areas surveyed registering a vacancy rate at 19 percent or higher. That number drops to seven having a vacancy mark of 24 percent or above, including Miami, Phoenix, Dallas and Oklahoma City.
"The (nearly) 25 percent figure is the true vacancy rate," said Robert F. Stuart Jr., general manager for Hammerson Management, which in addition to Empire Tower also owns the adjacent Main Place Mall and Liberty Building. "We expected at least 25 percent and internally told our company to expect nearly 30 percent."
Stuart pointed out that another chunk of space, 69,000 square feet in Lafayette Court being vacated by Marine Midland Bank once the institution moves to its new Marine Atrium building, also should be added to the total. That would raise the 24.4 percent figure about 1 percent.
The building owners' survey shows that total leasable square footage in Buffalo's central business district -- the area bounded by North, Elm and Exchange streets, and Elmwood-Terrace and the waterfront -- grew by nearly 363,000 square feet over the past year.
Additions to the 52-building survey include the first office tower at Key Center at Fountain Plaza, 270,854 square feet; 46,035 square feet formerly occupied at 17 Court St. by Key Bank; and 28,000 square feet of space at 206 South Elmwood, the Roanoke Building.
Deletions include the 162,000-square-foot Delaware Court building, purchased by Delaware North Cos. and occupied solely by the privately held firm, with the exception of one tenant that has 5,000 square feet of space.
The totals indicate that the market in one year absorbed about 68,000 square feet of space, slightly less than the 1989 absorption rate, but one-third of the 203,000 square feet the city assimilated yearly from 1982 through 1988.
But Stuart said that, even discounting the second Key tower, adding his 260,000 square feet of space to the vacancy total would mean a negative net absorption rate, something unheard of in Buffalo for many years.
Building owners and brokers all agreed that the figures indicate the city has a glut of space; the question now is how long will it take to absorb the excess. Industry observers say it could take 10 years to assimilate the national office glut.
But the local situation is much healthier, despite the 20 percent-plus vacancy rate, real estate industry experts conclude.
"It's very unusual in this marketplace that two events hit the market at the same time and skewered the figures," said James Militello, owner of Militello Real Estate. "If our local banks had not cut back so drastically and the city had not undergone such significant building with the Key Center project, excess space wouldn't be such a problem."
Militello predicted that within four years Buffalo should again be in good shape, regarding vacant office space; Stuart said five years is about right.
"The next few years are going to be a challenge for owners and real estate brokers and an opportunity for companies looking to expand or relocate," Ms. Hart said. "It actually makes it a tough decision for those tenants looking for space because of all the space available."
Downtown office vacancy rate at 8-year high