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This week's news that Buffalo's downtown office space vacancy rate has climbed well over 20 percent only publicly confirmed what building owners already knew: The market is mush.

Despite a vacancy rate pushing 25 percent, few tenants are willing to commit to moving, with the national economy grinding to a halt and a face-off in Kuwait-Iraq still a big possibility.

Not that owners aren't trying to entice lessees. The smell of a rate war is in the air, with all owners willing to eat expenses incurred to make improvements to a customer's new space. Free rent also is rapidly taking its place as an enticement.

In Buffalo right now, it's not hard to find top-notch space for $16 to $17 per square foot -- and possibly less. That down from the mid-$20 range not that many months ago.

And sublet space -- space in which one client has moved and it or its new lessor now must find another tenant for the vacated space -- can be had for a rock-bottom price.

Should a tenant be willing to take over the remaining 13 years on "Big Eight" accounting firm Ernst & Young's lease for 18,000 square feet in Marine Midland Center, the lessee can package a deal about $5 per square foot less than the accounting firm's rate, plus what amounts to a seven-figure signing bonus.

"In the downtown office space market, most owners understand the competitiveness of the market and, while quoted rental rates haven't changed, deal making has become quite creative," said Arthur Judelsohn, president of Berlow Real Estate, Inc.

done things before," said Richard Baumann, executive vice president of the broker-property management firm Wilrock National of Buffalo.

Rental rates for Class A space vary depending on such factors as length of lease, creditworthiness of the potential tenant, cost to retrofit space and, perhaps most important, how much an owner is willing to chop off his or her return on investment.

"Everything comes down to money, whether it's moving expenses, a new telephone system, computers, everything can be reduced to what it's worth," said Tim Lyons, director of office space leasing and development for Hunt Real Estate Corp. "And when it comes down to lowering rates, the first thing to go is the owner's return on investment."

Free rent, virtually unheard of a year ago, now is becoming the norm, real estate brokers said. So are incentive commissions for real estate brokers.

"We're seeing free rent in the range of two to four months, and we may see more later on," said Cheryl Hart, owner of Niagara Frontier Realty Inc. Judelsohn bumped the term of free rent available downtown to six months or more to good tenants.

Berlow currently has a customer who, Judelsohn said, was willing to "give away the present in order to guarantee the future.

"It makes effective rental rates a minimum of 10 percent under market rates," Judelsohn said.

No owner wants a rate war. Everyone wants to make money off an investment. But with owners willing to gamble, when it comes down to empty space versus placing a tenant at a bare return, look for space to be filled.

"People will buy property and if they don't make any money, well, that's OK," Lyons said. "But when you have to come back to them and ask them to again invest (to operate said property), that's when they get upset."

With the glut of space, Buffalo's solution is simple: the city needs more tenants. And brokers remain confident that once the Mideast situation is settled -- peacefully -- and good economic news begins to filter out of Washington, D.C., the market will settle down and tenants again will begin jockeying for the best deal.

Throw in the wild card of a possible influx of Canadian tenants and a 24.4 percent Central Business District vacancy rate could be whittled away rather quickly, some feel.

"The bad news is there's not much demand," Hunt's Lyons said. "The good news is an uptick in demand could quickly swallow vacant space in Buffalo as opposed to other, larger markets with comparable percentage rate vacancies."

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