The redevelopment of Seneca One tower, buoyed by M&T Bank Corp. leasing of a significant portion of space for a technology hub, helped bring down office vacancies in Buffalo last year.
And it's getting extremely tough to find warehouse and manufacturing buildings in Western New York.
But retail openings have increased amid the continued closing of major mall stores, according to the latest annual study of the Buffalo Niagara commercial real estate market.
Those are the top-level results of the new study by international brokerage firm CBRE's Buffalo office, which released its widely watched MarketView report Tuesday night.
The data is a snapshot of the market at the end of the fourth quarter, but it's considered a bellwether of the market's health, and an indicator of trends affecting the commercial real estate market and the businesses that need and use the space.
“The outlook for the Buffalo market remains positive for all sectors going into 2020," said CBRE Buffalo Managing Director Shana Stegner.
According to CBRE, about 12% of the entire office space market was vacant and available for lease at the end of last year. That's about 4.2 million square feet out of the total inventory of 35.03 million square feet.
That's a drop from 12.5% a year earlier, and just below the national rate of 12.1%.
The decline is largely due to M&T's lease of 330,000 square feet on two giant base floors of Seneca One complex and 11 floors of the tower. The M&T lease accounts for about half of the "net absorption" of 704,809 square feet of space last year – the largest amount of space taken up in the Buffalo market since 2008, prior to the financial crisis and recession.
But that means the rest of the market didn't keep pace with the amount of new or redeveloped office space that came online last year, which totaled 454,110 square feet – nearly 100,000 more than was newly occupied. Many of those projects were medical or health services in nature, which "continues to be a key driver of development and lease activity," the report noted.
Another trend is the growth in "boutique-style agile space offerings that are rightsized for Buffalo's demand," CBRE said. So while WeWork is flailing nationally, Uniland Development Co. is entering the local co-working arena with Hansa, its renovation of a former warehouse on Ellicott Street into flexible space.
Finally, more than 350,000 square feet of office space is under construction or slated to begin this year, including Krog Group's redevelopment of the Trico Products Corp. plant just south of the Buffalo Niagara Medical Campus. Several other projects are in the "conceptual phase, waiting for tenant commitments, the report added.
"Buffalo has long been considered a cautious non-speculative market and that remains true today," the report said.
The nature of the space is also changing, with more single-tenant and build-to-suit projects, as well as an increased demand for "quality space and amenities" amid the labor shortage.
"Ten years ago, parking and a lunch option were more than enough," the report concluded. "Now, tenants look for the true 'live, work, play' atmosphere and 'cool factor.' "
The region's industrial market has the opposite problem – too little new space and too much demand.
Industrial vacancies fell to a record low of 2.6% at the end of last year, easily beating the 3.4% mark set a year earlier, according to CBRE.
That's after users took up 855,910 square feet of existing space, while only 141,000 was built, the report said. That left 1.77 million square feet available for lease at year end, down from 2.24 million a year earlier.
By contrast, the national rate ticked up to 7.2% – nearly triple that of the Buffalo market. It's the 16th straight year that Western New York has come in below the national average, CBRE reported. The local figure is also lower than in Cleveland, Pittsburgh, Rochester and Albany.
Much of the region's activity occurred in the city, and was driven by e-commerce, food and beverage, and home improvement companies. E-commerce and logistics firms accounted for more than half of the 100 largest warehouse leases last year, CBRE found.
Another 300,000 square feet of space is proposed for 2020, mostly from the conversion of a retail plaza into an industrial park.
The "retail apocalypse" continued to impact Western New York, with the departure of Sears and Kmart, as well as other big-box and mall store closings, CBRE said. As a result, the firm reported, the retail market recorded a 12.9% vacancy rate locally at the end of last year, up from 11.6% in 2018. That's more than double the national average of 6.1%.
CBRE noted that much of the vacant space is located in large malls that are slated for redevelopment or conversion to "lifestyle centers," mixed-use projects or other uses – such as Eastern Hills Mall in Clarence, Boulevard Mall in Amherst and downtown's Main Place Mall.
The 1-million-square-foot Eastern Hills, owned by Uniland and New Jersey-based Mountain Development Corp., is supposed to be converted into a "town center." So is the Boulevard, which is now owned by Jemal. McKinley Mall in Hamburg is in receivership. And Main Place Mall is slated for conversion into an office and high-tech hub.
The apartment market in Buffalo Niagara remains attractive for income-property investors, as demand exceeds the supply, according to CBRE.
Last year, there were 165 deals involving 2,349 units, which sold for a total of $138 million, or an average of $58,749 per unit. That's the fifth-straight year that the average exceeded $50,000, the brokerage said.
Twenty-seven of the deals, with 1,555 units, involved properties with at least 40 apartments or a dollar value that exceeded $1 million. In all, they accounted for $101.9 million, or 74% of the total transaction volume.
The two largest deals were the sale of the 246-unit Affinity Sutton Place in Amherst for $15.925 million and the sale of the 150-unit Jewish Federation Apartments on Essjay Road, also in Amherst, for $14.4 million. CBRE did not include Gold Wynn Residential's purchase of 18 buildings and 841 apartments from Kissling Interests because the nature of the deal meant the total purchase price was not disclosed.