After much trepidation over how Western New York's commercial real estate market is faring, it turns out that the answer is: pretty well.
The commercial property market for office, retail and industrial properties is much stronger and more stable than many major cities around the country, even compared with others in upstate New York and the larger region, according to an annual study by brokerage firm CB Richard Ellis.
"We're looking good compared to our neighboring cities," Shana Stegner, office sales and leasing director for Ellis' Buffalo office, said at the presentation of the firm's MarketView reports.
Vacancy rates for the three categories generally hovered between 11 percent and 13.5 percent, with only slight increases in office and retail and a drop for industrial properties. That was better than the national average in two of the three cases and just above it in the third.
"This is a picture of a very stable market," said Stephen J. Blake, vice president for commercial and industrial real estate. "There are a lot of cities out there that would love to see a boring market."
Also, activity in the multiple-family market remains slower than before the recession, with a few niche areas of growth for downtown condominiums, senior citizen and student housing, and adaptive re-use projects.
And the outlook for this year in all four areas is for a continuation of last year's general trends, brokers said, with only slight changes. "The story will remain the same as it's been since the credit markets started to tighten in 2007," said Robert J. Starzynski, associate broker at the Ellis firm, who oversees multifamily and investment properties locally.
Other area brokers affirmed Ellis' findings. "It's not great. It's not where it was," said Gregory M. Oehler, chief operating officer of Hunt Commercial Real Estate. "We're not going to get back to that point, but we're going to be a heck of a lot better than in 2009. This may be the new normal for a while."
Plenty of concern remains about what could happen to the downtown office market if HSBC Bank USA and Phillips Lytle LLP both vacate One HSBC Center. That would leave 87 percent of the city's dominant building empty at the same time and essentially double the available office space in central business district.
"Depending on their decision, our downtown market could see a lot of space come on the market in the next 18 months," Stegner said.
That may happen, but the government should not get involved in trying to keep HSBC from leaving the tower, Carl P. Paladino, a developer and former gubernatorial candidate, said during remarks to the Buffalo chapter of the New York State Commercial Association of Realtors.
"I am very much against anyone telling HSBC what to do. It's their decision," he said. "They've got their minds on a new build. They know what they want."
But other observers say even if that worst-case possibility comes to pass, it remains three years away, allowing ample time for the building's New York City-based owner to find other tenants or make other changes.
"The only silver lining is they don't leave until 2014, so we've got time to line people up," Oehler said.
"It's not an immediate crisis," agreed Howard Saperston, chairman of Saperston Real Estate. "It's not the near future, but the far future, and in thattimeline, who knows who might decide to go in there."
The Ellis firm is a commercial real estate brokerage, with 425 offices worldwide. Its annual MarketView reports provide an overview of the office, industrial and retail real estate markets in each of the geographic areas it serves, and are widely read and watched for indications of how a region is faring. More than 100 people attended Thursday's presentation.
In the local office market, Ellis tracks 668 office buildings with at least 10,000 square feet in Buffalo and 12 suburbs to the north, east and south. According to the firm, the region's overall office vacancy rate rose to 10.99 percent last year from 10.5 percent in 2009.
Vacancies in the central business district's Class A market decreased last year to less than 4 percent, while overall vacancy in the suburbs rose except for the eastern areas.
By comparison, vacancy rates are higher elsewhere -- at 11.7 percent in Pittsburgh, 13.1 percent in Syracuse, 13.2 percent in Albany, 18.8 percent in Rochester and 20.8 percent in Cleveland.
On a broader scale, Detroit's rate is 29.8 percent and Atlanta's is 25.4 percent, while Las Vegas stands at 24.1 percent, Phoenix is 25.9 percent and Dallas is 28.5 percent. Some localities have lower rates -- 8.9 percent in Manhattan, 9.4 percent in Toronto and 10.3 percent in Washington, D.C. But the U.S. average is 17.5 percent.
Among the 65 million square feet of industrial properties that Ellis tracks locally, the vacancy rate fell to 11.7 percent from 12.8 percent.
Each of Buffalo's four "submarkets" also posted reductions, from 5.6 percent in the northern suburbs to 24.4 percent in the city.
The rate remains below 13.4 percent nationally. Toronto also dropped, to about 7 percent, while Cleveland, Syracuse and Pittsburgh rose to between 8 percent and 12 percent. By contrast, Boston's overall rate topped 20 percent.
Pricing is hovering around $30 per square foot for warehouse and manufacturing space, down 25 percent from 2008 and down 15 percent from 2006.
"This suggests we might have leveled out," Saperston said.
In the retail market, both vacancy and absorption rates rose, while lease rates remained flat and construction activity fell. Overall vacancy rose by half a percentage point to 13.47 percent, compared with a national average of 13.1 percent, and stores absorbed 87,554 square feet of space.
Vacancies are likely to rise slightly in 2011, said Michael Clark, director of retail services for CB Richard Ellis, who cited bankruptcies and closings of Rosa's Home Stores and other retailers with at least 500,000 square feet of space among them. But factory outlet and discount stores "continue to prosper" and new store openings will continue, albeit at a slower pace than during the boom days. And the only real estate projects will likely be tenant-driven, not speculative.
In the multiple-unit and investment properties arena, which Ellis has been tracking locally for six years, the number of transactions last year was almost flat from 2009, rising to 132 from 129. But the number of units jumped to 1,391 from 943, and total transactions rose to $44.6 million from $27.7 million. Still, that's more than 60 percent below the peaks from 2005 to 2007.
Regionally, the price per unit has risen gradually over the past few years, from about $25,000 to $32,000.