Office vacancies are up across the Buffalo marketplace, but retail and industrial vacancies are down, and sales prices for apartment units jumped to their highest in at least a decade, according to a new report on the health of the local commercial real estate market by the Buffalo office of international brokerage firm CBRE.
The annual MarketView report, released Thursday night at a packed event at developer Rocco Termini’s Foundry Hotel & Banquet Center, shows overall positive trends in all four sectors of the market despite a large amount of vacant office space in downtown Buffalo.
That was mirrored in the optimism not only of the CBRE brokers but also Termini, who talked of his three new redevelopment projects in the neighborhood in what he touted as a new “walkable community.” About 150 people will be living within that one-block area, he said, with people paying $1,400 a month in rent at The Foundry’s apartments “to live next to a junkyard.”
“The mind-set of Buffalo is changing, and it’s important that we all change with it,” Termini said. “We all need to continue working to make Buffalo a better city.”
Moderator Dottie Gallagher-Cohen, CEO of the Buffalo Niagara Partnership, also noted growth in average per-capita income locally and the reversal of the longtime drain of young adults aged 25 to 34 as indications of a “new Buffalo.”
“I think we’re all beginning to really believe that things are changing here,” Gallagher-Cohen said. “I am not George Bush, and this is not a Mission Accomplished moment. We still have a lot of work to do, but the trends are pointing in the right direction, and it’s up to us to finish the job.”
Much of the downtown office vacancy is due specifically to the nearly vacant One Seneca Tower, with most of its 900,000 square feet of space now empty. That drove the overall vacancy rate up to 14 percent, including nearly 19 percent downtown and 21 percent for Class A space, said CBRE managing director Shana Stegner, who oversees the firm’s office team.
Nearly 315,000 square feet of new space was added and mostly pre-leased, and the market still absorbed 158,786 square feet on top of that, although that was down from the prior year. Another 550,000 square feet is now under construction or in planning, with the Larkin District still gaining momentum, along with medical, education and back-office space.
Older and dated space is also increasingly being converted and reused. Government agencies at all levels are “starting to pay attention to their space needs and being more efficient,” Stegner said. And tenants are also demonstrating more confidence and demanding more desirable space, and lease rates are starting to inch up as landlords catch on.
In the industrial market, continued strong demand brought the vacancy rate down from 5.7 percent to 4.5 percent – the lowest in at least 10 years and the third-straight drop – as 900,984 square feet of space was taken up, mostly in the city and eastern suburbs. Only 88,000 square feet was added, although the increasing lack of inventory may finally put pressure on lease rates and drive more construction this year.
“Welcome to the new Buffalo,” said CBRE vice president and partner Steve Blake. “It’s been on fire and it’s time to restock the shelves.”
Retail vacancies fell to 10.3 percent locally, also the lowest in at least a decade and below the national average. That’s the third straight drop, with the market having reduced its vacancy rate by 4.1 points over that time. New inventory was added, but it’s tenant-driven, including the retail and restaurant portions of HarborCenter, the new Cabela’s store in Cheektowaga, the Texas de Brazil restaurant at the Galleria, the new Popeye’s restaurant, and the 170,000-square-foot expansion of the Fashion Outlets at Niagara Falls. Whole Foods announced plans for its first local store at Northtown Plaza.
“We’re on the radar screen, which we never were before,” said Michael Clark, CBRE director of retail tenant services.
Finally, the multi-family investment property market saw 146 transactions last year, with 3,168 apartments sold, for a total of $152.9 million. That’s 18 percent more apartment units and a 45 percent increase in dollars over 2013, although transactions are down from 179 a year ago. The average sale price per unit rose to $48,258, up by $9,000 from the prior two years.
Both new construction and re-use of older, existing properties has driven significant activity, which continues to benefit from low interest rates and new investors entering the market. More than 800 new apartments had been completed through adaptive reuse, while more than 190 units are in the works, for a total of more than 1,000 new units in the city in the past 10 years.
Highlights include LPCiminelli’s planned construction of about 600 rental units on the 27-acre former Central Park Plaza site for a total of $70 million, and a pair of acquisitions by Aaron Siegel and Brett Fitzpatrick, totaling more than 500 units, with a total investment of $52 million for both purchase and renovations.
For more on the commercial real estate market, see the Buffalo News’ Prospectus section on Sunday.