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DOWNTOWN MAY SHARE IN THE OFFICE PROSPERITY OF THE SUBURBS

Comparisons with Atlanta won't be drawn any time soon, but the Buffalo region's commercial real estate market shows signs of sustainable growth.

Developers and real estate brokers said they see increased demand for industrial and office space, primarily from expanding local companies.

Growth sectors in the local economy, including distribution and warehousing, auto parts manufacturing, medical technologies and financial services, could drive further demand in 1999. Interest rates remain low, offering affordable project capital.

The central business district in downtown Buffalo may even start seeing growing demand for office space for the first time in years, experts said. Plans for a new convention center, a potential downtown casino and waterfront development proposals could create major market activity this year.

"I think that people seem to have confidence. The economy was stronger last year," said Howard Saperston Jr., chairman of Saperston Real Estate Corp. "I see a slow, steady growth (in 1999) as we had last year. I don't think we'll ever be a Toronto or a Boston, because we don't have the major home industry here."

Various professional surveys showed the vacancy rate for office and industrial space in the Buffalo area declining by 2 to 4 percent in 1998. Ciminelli Development Co. said its 4 million square feet of office space ran at 98 percent occupancy last year.

The year was highlighted by a major build-to-suit project in Amherst. A 130,000-square-foot facility being constructed for NationsBanc Mortgage Corp. is huge by Buffalo standards, the largest private-sector project since Tops Markets Corp.'s headquarters opened in Williamsville several years ago.

NationsBanc will relocate to the CrossPoint Business Park, one of two new parks opened in Amherst in 1998.

Developers seem to have enough confidence in the local economy to invest in speculative projects, and early returns are encouraging.

Zaepfel Development Co. erected a 30,000-square-foot office building on speculation in its new Northpoint Commerce Center and quickly leased the space.

New tenants in Amherst's Northpoint center include: PremCom Corp., a 7-year-old communication systems integration company; Eastern Copy Products, which sells and services office equipment; Quest Diagnostics, a medical diagnostics lab; Infominers Inc., a growing software company, and Siemans Building Technologies, a fire safety equipment manufacturer with 50 employees.

Zaepfel is proceeding with two 28,000-square-foot multi-tenant flex buildings in Northpoint at a cost of about $4 million.

Meanwhile, real estate brokers also see growing demand for industrial space from companies looking to conduct light manufacturing, warehousing and distribution.

"We see almost a shortage of good 40-to-60-to-80,000-square-foot industrial sites for sale," said Robert A. Schell, president of Pyramid Brokerage Co. of Buffalo.

A 1999 forecast by the Society of Industrial and Office Realtors indicates demand for industrial space in Buffalo will grow. The business climate is improving because of incentives offered by Buffalo, Erie County and New York State agencies, according to the SIOR.

The Buffalo Niagara International Airport neighborhood could become a popular site in 1999. The pending demolition of the former Westinghouse plant near the airport clears the way for development.

Uniland Development Co. plans a 64-acre business park adjacent to the Westinghouse site. The park will offer 560,000 square feet of office, research and development and commercial space. An Executive Suites Hotel and conference center is planned for the site, known as the Airborne Business Park.

"Additional funding from the state to make the demolition of the Westinghouse plant a reality sparked unprecedented interest in the town (of Cheektowaga). The surrounding properties will take on a whole new look," said Laura A. Zaepfel, spokeswoman for Uniland, during a November announcement.

Buffalo municipal planners will continue trying to leverage the city's Canadian border and opportunities presented by the North American Free Trade Agreement.

Girdlestone Brokerage Ltd., a Canadian firm, opened its first freight-forwarding office in Buffalo in 1998 and the city hopes to lure similar companies to 114 acres along the I-190 International Trade Corridor.

However, the strength of the U.S. dollar over Canadian currency continues to be a major obstacle to attracting Canadian investment in Western New York.

Buffalo's position as a "branch town," with few companies headquartered here, and local losses to merger and acquisition also continue restraining the market.

The local economy took some major hits in the fourth quarter of 1998. The relocation of Graphic Controls Corp. headquarters, departure of some Westwood-Squibb operations and closure of a River Ranch Fresh Foods plant eliminated more than 500 local jobs.

"It's like the general economy. We are symptoms of that. You can see the merger and acquisition trend has a tremendous impact on the need for space here," said Stephen Hunt, president of Hunt Commercial Real Estate.

The departure of Graphic Controls, after an acquisition by Tyco International, opens almost 100,000 square feet of office space on La Riviere Drive on the waterfront. The building has drawn interest from Delaware North Cos. Inc. and other prospective tenants.

Also drawing increased interest downtown is the vacant south tower of KeyCenter. The 8-year-old tower, a symbol of downtown's bust, likely will begin filling this year.

"We have very, very strong interest in the south tower and we feel we could have most of that leased up by the end of the year," said Paul L. Ciminelli, president of Ciminelli Development Co., which is the building lease agent.

Ciminelli is also building additional office space in Williamsville with Village Center set to open in 1999. Paine Webber has leased 7,000 square feet of new space in the center off Main Street.

The downtown office space market had what Realtors described as a flat year in 1998. There were a few tenants shuffled into new offices, but no major arrivals or departures.

An office space survey conducted by James R. Militello Realty Inc. showed the downtown vacancy rate inching from 21.2 percent in December 1997 to 21.9 percent in December 1998. Downtown rental rates for Class A space remain in the $16 to $20 per square foot range.

"Downtown held its own. It wasn't the turnaround year we hoped for, but we didn't go backward as we have in the past," said broker James Militello, who forecasts an improved market in 1999.

"Downtown has gotten itself into a position for something good to happen. Now there is enough excitement, enough of a story to be told," he added.