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CBRE Buffalo: Office Space Down, Industrial Retail Up

Friday, January 20, 2012
 
James Fink

The Buffalo Niagara commercial real estate market experienced mixed results last year, according to an annual overview.

The results, prepared by the CBRE/Buffalo office, were released late on Jan. 19.

Office space vacancy dropped as did the sale of multi-tenant apartment buildings while the backlog of available industrial space rose by slightly more than 1 million square feet. Vacancy at area shopping centers and mall also rose.

All are signs that the region is still working against the backdrop of a weak economy.

“Vacancies increase and prices decrease, the free market is reacting,” said Steve Blake, a CBRE/Buffalo partner and industrial real estate specialist. “By the end of the year we should see some upward momentum. I feel we are close to the bottom.”

Blake noted the industrial space vacancy rate increased to 13.2 percent last year from 11.7 percent in 2010. The national industrial space vacancy rate is 13.7 percent.

“In that regard we are holding our own,” Blake said.

By comparison Rochester’s industrial office space reported a 12.7 percent vacancy rate while Syracuse had an 11.4 percent vacancy rate. Both decreased from 2010, Blake said.

In Buffalo, approximately 125,000 square feet of new industrial space was added last year. In 2010, no new industrial space was added.

Industrial space, primarily warehouses and distribution centers, is going for $26 per square foot, compared to a $40 per-square-foot rate that was reported in 2007.

Still, Blake said there is a pent up demand for new industrial space that coupled with the little new product on line makes for a potentially healthy scenario.

“The dynamics are there for a turnaround year,” Blake said.

In other trends noted in the annual CBRE/Buffalo survey:

• Retail vacancy increased to 14.39 last year from 13.49 percent in 2010, said Michael Clark, CBRE director of retail sales.

The level of retail-based vacancy, during the economic downturn of the past three years, has risen 1.67 percent.

New retailers like Five Guys, H&M and White House Black Market entered the market in the past year. WalMart continues to expand as does stores like BJ’s Wholesale Club and CW Price.

Clark said the area does benefit from the influx of Canadian shoppers, who for some malls account for 40 percent of their customer base.

But, don’t look for a massive retailing construction boom, Clark predicted.

“Spec retail is pretty much a thing of the past, not just in Western New York but across the country,” he said.

• Downtown Buffalo has a 4.37 percent vacancy rate for Class A office space and overall the region has a 10.67 percent vacancy rate — one of the best in the country, said Shana Stegner, CBRE office sales and leasing director.

“B” space in Buffalo is 12.85 percent, a marginal number.

By comparison, Rochester has an overall 19.2 percent office vacancy rate while Atlanta has a 20.6 percent office vacancy rate. The national office vacancy rate is 16.5 percent.

Downtown should continue to see older buildings renovated but the city is still waiting to see what will happen when One HSBC Center loses its two anchor tenants, HSBC Bank and the Phillips Lytle law firm. Those businesses account for 77 percent of the 38-story building’s 850,000-square-feet of space.

“Downsizing is still a major factor,” Stegner said.

• While there were only a limited number of multi-tenant apartment buildings sale last year, 111 according to CBRE statistics, there remains a strong demand for student and senior housing.

Robert Starzynski, CBRE investment property specialist, said he expects to see some limited new construction in the senior and student housing markets this year especially near the University at Buffalo campus in Amherst.

“Student housing needs are out there,” Starzynski said. “There is room for absorption in the Northtowns.”

Starzynski said the adaptive re-use trend in downtown Buffalo will continue.

“I don’t see any sign that the trend is abating,” he said.