Western New York’s commercial real estate market is improving once again, as retail, office and industrial vacancies fall, while the multifamily housing market continues its climb back to pre-recession levels, according to the annual MarketView reports by brokerage firm CBRE.
Vacancy rates overall for the region range from about 9 to 13 percent, and are generally at or well below national levels.
Retail has the most holes in its market, while the industrial arena is extremely tight, and the office market falls in the middle. Tenants continue to absorb available space, and new construction is limited to specific tenant demand.
“We don’t build on spec,” said Shana B.Stegner, director of office sales and leasing at CBRE in Buffalo. “It’s totally tenant-driven, and very cautious lenders. You’ve got to have a tenant in hand before you build something, and a certain amount of the building pre-leased to get the financing.”
Within the broader Western New York region, local vacancies range from as low as 4.4 percent for the northern suburbs’ industrial market to as high as 18.94 percent for the city’s retail market.
And sales of multifamily properties remain steady relative to recent years, although the number of units sold and the prices are increasing. The last year saw 131 transactions with 2,109 units, for a total value of $83.2 million, or $39,435 per unit – all up from a year earlier. Demand is also picking up, especially for new construction of student and senior citizen housing, as well as adaptive reuse or conversion of older city buildings into market-rate apartments.
CBRE’s MarketView reports, which are produced in cities across the country, are widely watched as a barometer of the health of local commercial real estate markets. The firm released its Buffalo-area reports Wednesday evening at an event for local real estate, business and community leaders at the Avant.
“The market is doing quite well. We’re chugging along, and the inventory of office space continues to grow,” said James R. Militello, president of J.R. Militello Realty.
According to the CBRE report, the region’s office market remains stable overall, with activity focused around medical-related and waterfront-development projects, while older buildings are being converted for office use or upgraded. Empty space is being absorbed, particularly in the suburbs, as tenants shift around, while new construction is limited to specific tenant demand.
The office vacancy rate fell slightly from 10.69 percent a year ago and is well below the national rate of 15.5 percent, as the city’s outer areas and the southern and eastern suburbs outpaced downtown in absorbing space. Lease rates range from $19 to $25 per square foot for Class A space, and $15 to $18 for Class B. The eastern market, in particular, absorbed almost 150,000 square feet and cut its vacancy rate sharply. The northern suburbs were stable.
But the future of One HSBC Center casts a shadow on downtown Buffalo, as the community waits to see what will happen to the building after HSBC Bank USA moves out. According to the CBRE reports, the overall retail vacancy rate in Western New York fell to 13.02 percent after three years of increases, as 278,992 square feet of space was absorbed and 3.4 million of the market’s 26.4 million total square feet of retail space remains empty. The retail market continues to be fueled by a mixture of local and Canadian shoppers, which drives up sales and keeps the market stable and desirable for retailers.
It also benefited from expanding retailers and redevelopment efforts. In particular, the razing of the vacant and derelict former Central Park Plaza in Buffalo, to make way for reuse as residential or mixed-use commercial, played a big role.
All of the submarkets saw lower vacancies, except for the area around Boulevard Mall in Amherst, but even that area saw activity, as Premier Liquor and Premier Gourmet opened on Maple Road, and other developments continued on both Niagara Falls Boulevard and Sheridan Drive. Walmart opened a 188,000-square-foot store at the former Melody Fair location in North Tonawanda and a Super Walmart on Walden Avenue near Walden Galleria, while Benderson Development Co. bought the former Wegmans Plaza on Walden at the Thruway.
The industrial market is getting tighter, as the vacancy rate – already well below the national average – plunged further to 9.2 percent, from 13.2 percent, with 2.4 million square feet absorbed. That was led by the sales of the vacant Quad Graphics and American Axle & Manufacturing facilities, totaling about 860,000 square feet. And there’s little new construction.
“Because landlords aren’t building, we’re absorbing the existing space,” said Lida Eberz, commercial and industrial real estate sales associate. “… Our prediction is that this rate will continue to go down in the coming year, because of the lack of new construction, and until some of these developers start putting a shovel in the ground, we’re going to keep absorbing the space. …
“Sale prices are going to continue to go up, and the lease rates are going to go up. Construction will not occur fast enough.”