Western New York’s commercial real estate market continues to slowly but steadily improve – driven by economic recovery, renovations and more interest in downtown Buffalo – but the slack demand for existing office space remains a challenge for 2016 and beyond.
The redevelopment of historic buildings – fueled by generous tax breaks – has created a wealth of new apartment space downtown, but with fewer old buildings left to develop, focus may move elsewhere.
“I think you’re going to see parking lots become shovel-ready sites,” said Rocco Termini, of Signature Development Buffalo LLC.
Vacancies fell across the board over the last year in the office, industrial and retail sectors, as available space was either absorbed or removed from the market after it was converted to apartments, according to data from CBRE-Buffalo’s annual MarketView reports. There’s still generally more space available in the city, and especially the downtown core, while the market is much tighter in some of the suburbs.
Here’s a closer look at each sector in the Buffalo Niagara region:
It’s a good time to be in the apartment business in Buffalo.
Infrastructure investments on the waterfront, street-scape improvements in several neighborhoods, the return of cars to Main Street and renovations to numerous older buildings are reviving parts of the city that have languished, spurring new confidence and civic spirit among residents, landlords and real estate investors.
As a result, there’s a stronger desire to work, eat, entertain and live in the city’s core. Apartment conversions of old industrial buildings, warehouses, schools and even churches are expected to continue, as most of the new supply has been taken up as soon as it has come online. Notable upcoming examples include the Apartments @ Queen City Landing, Freight House Landing, the Trico Building, the Marin and the Glenny, Midtown Apartments and the Sinclair.
The interest is also translating into sales of existing apartment buildings. Last year, according to CBRE research, 2,103 apartment units changed hands in 101 transactions, for a total deal value of $112 million.
That’s down from the last two years, but the price per unit continues to rise. At an average of $53,274, that’s 10 percent more than the previous decade-long high of $48,258, and 55 percent higher than the average for the decade before that.
“We’re fairly optimistic,” said Dennis Penman, executive vice president at Ciminelli Real Estate. “I think demand is going to be strong, and supply is fairly tight, and probably will be for the next 24 months. Where you can build, you’re going to be successful.”
The region’s industrial space, including manufacturing and warehouse facilities, remains tight, with the vacancy rate falling to 3.6 percent from 4.5 percent a year ago, according to CBRE data.
Vacancies range from just 2.9 percent in the northern suburbs to 5.1 percent in the city, meaning there’s virtually no room for new industrial users in existing space.
In recent weeks, developers have proposed two new giant warehouse facilities on Dingens Street in Buffalo, and both are expected to be quickly filled. Ashton-Potter Security Printers is building a new facility in Cheektowaga, and John W. Danforth Company and developer JT Vaeth LLC are planning a new 83,000-square-foot multi-tenant warehouse across from the SolarCity manufacturing plant at Riverbend.
In addition, the state and city, through the Buffalo Urban Development Corp., are targeting some of the Buffalo Billion initiative money to build a light industrial development hub in the Northland Avenue Belt Line Corridor zone on Buffalo’s East Side.
Western New York retailers have benefitted from Canadian shoppers drawn coming across the border, as well as renewed confidence among consumers locally. That’s helped to lure new stores to the area, like Cabela’s in Cheektowaga, several new stores and restaurants at the Walden Galleria Mall, and the new Whole Foods slated to open in 2017 at Northtown Plaza in Amherst.
As a result, overall retail vacancy in the region fell from 10.3 percent a year ago to 9.6 percent, according to CBRE research.
Specific business corridors vary widely, however. The areas around the Eastern Hill and Galleria malls, for example, appear to be thriving, with vacancies of 4.6 percent and 6.7 percent, respectively.
And the McKinley Mall area in Hamburg posted a rate of 9.7 percent. But both Eastern Hills and McKinley will be losing their Macy’s anchor tenants this year.
The Boulevard Mall area in Amherst has an 11 percent vacancy rate, while Niagara Falls recorded a 12.8 percent vacancy.
And the city, whose downtown retail area is starting to recover with the return of car traffic to Main Street, posted a 16.8 percent vacancy.
Commercial office space continues to have the highest level of empty space of the four categories, with the office vacancy rate falling a half-point to 13.5 percent in the fourth quarter, compared to a year earlier.
The highest vacancy rate was in the central business district of Buffalo, where 17.8 percent of the available office space is empty, and in the southern suburbs, where 14.1 percent is available. Northern suburbs have a 12.1 percent vacancy rate, while the rest of Buffalo was at 11.5 percent. East of the city had 8.7 percent of its office space empty.
Companies are seeking out newer space, so despite an overall sluggish office market, many new projects include more office space.
Ciminelli Real Estate Corp. is finishing the seven-story Conventus building on the Buffalo Niagara Medical Campus and plans a second $100 million building across the street at 33 High St.
Similarly, McGuire Development, which remodeled the former Sheehan Hospital into the Compass East office building on Michigan Avenue, plans for a second neighboring 45,000-square-foot building with a blend of apartments and street-level retail and office space.