NORTHEAST SNAPSHOT, JULY 2005

Buffalo, New York, Office Market

The Buffalo, New York, office market is in the midst of a continued slow recovery from the lows experienced in the early 2000s. “The downtown office inventory continues to grow at a slow, controlled pace, meeting the demand for new, quality office product,” says James Militello, founder of J.R. Militello Realty/CORFAC International of Buffalo.

The vacancy rate in Buffalo for Class A space is approximately 13.8 percent, compared to 37.1 percent for Class B space. This glaring difference is indicative of the 5-year trend of the movement of tenants to higher quality space from older Class B and C inventory, notes Militello.

Class A occupancy levels have increased marginally — an average of 81,339 square feet — year-to-year since 2000. However, occupancy in Class B properties has remained flat and decreased significantly in Class C space. The existing lower quality downtown office space is garnering little interest from prospective tenants, while what Class A space is available downtown continues to be filled steadily. Rental rates are currently between $18 and $23 per square foot plus utilities.

Another market garnering interest from office users is Amherst, which offers suburban space bordering Buffalo to the northeast. With 8.6 million square feet of occupied space (to downtown Buffalo’s 8.1 million), Amherst is the major office center in Erie County and continues to compete with the downtown area for tenants. According to Militello, 75 percent of office transactions take place in these two submarkets.

In Amherst, Geico Direct has signed a lease for 250,000 square feet in Crosspointe Office Park. Also, City View is redeveloping the 640,000-square-foot Larkin Warehouse into office use. While this project will be a positive investment for the community, Militello notes that it has a negative impact on downtown vacancy levels by drawing tenants out of the central business district.

The high cost of assembling and clearing sites downtown is driving up effective land prices and forcing many projects out of the central business district. However, HealthNow has signed on to occupy 360,000 square feet of new space on Lower Terrace. Another bright spot, according to Militello, is the growth of governmental agencies in downtown Buffalo, and their policy of leasing privately owned facilities.

There is optimism that the large mixed-use undertaking along Buffalo’s waterfront, which will feature a 250,000-square-foot Bass Pro Shop, a hotel and various other components, will help spur activity in the office sector as well.

Another corridor to watch in Buffalo is the medical campus along the northern border of downtown; it has generated increased interest of late.

Though vacancies in the lower quality segments of the market remain high, the Buffalo office sector should continue to improve as quality product comes online and creates renewed interest in the downtown area.

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