MARKET HIGHLIGHT, MARCH 2005
UPSTATE NEW YORK MARKET HIGHLIGHT
Buffalo Multifamily Market
Something unusual is being seen with more and more frequency in downtown Buffalo, New York.
It’s people — not the people who populate the offices, shops and restaurants Monday through Friday before heading home to the suburbs — it’s people doing the things associated with being close to home, because they are close to home.
The Ellicott Lofts were completed in 2003. The 19th century warehouse complex was converted into 34 rental units with 5,000 square feet of designated office space. The existing units are fully occupied and plans have been made for an additional 60 units.
After a generation of seeing the effects of urban sprawl pull people away from downtown, the efforts to reverse suburban flight are paying off.
The numbers aren’t big — yet — but the trend is unmistakable. The common thread is the creative reuse of existing turn-of-the-century buildings rather than new construction, coupled with styles and pricing that appeal to a broad cross-section of the population.
It began with the Lofts at Elk Terminal, a former food terminal converted by the First Amherst Development Company into 52 upscale apartments that opened in 2002. What at the time was a $10 million experiment has paid off. The units are 100 percent occupied and an additional 48 are in development and scheduled to open in late 2005 or early 2006. Developers had tapped into a renewed interest in downtown living, fueled by Buffalo Niagara’s reputation of having housing costs that are among the nation’s lowest. Rents for the new and proposed downtown housing developments range from $525 per month for lofts to $2,500 for luxury apartments.
In 2003, the Ellicott Lofts converted a 19th century warehouse complex into 34 rental units combined with 5,000 square feet of office space. The original units are fully occupied, and an additional 60 units are being designed. The project represents a public-private partnership targeted specifically at the city’s middle-income workforce.
Steps away, in the Cobblestone District, a two-developer team of Avalon Development Company and Savarino Construction Services is sustaining the momentum with a proposed $15 million remake of a vacant five-building distribution services center into a 30- to 40-unit apartment/condominium/ office/restaurant complex.
The Sidway Building (67 units by Clover Management Inc.) and Belesario (29 apartments by the Ellicott Development Company) developments both represent successful conversions of retail/commercial/industrial structures into upscale, luxury housing units. The Holling Press development (28 units by E Square Capital Inc.) targets the middle-income demographic. These developments are taking place with an eye toward the nearby Buffalo Niagara Medical Campus, a $400 million, 100-acre life sciences complex.
All told, nearly 1,000 housing units have been built or are on the drawing board, representing more than $63 million in private and public financing. It’s a sign to planners and developers that the boom is underway, and that their vision that housing is one of the keys to bringing downtown Buffalo back to life is becoming a reality.
— Leon Lewek, Communications, Buffalo Niagara Enterprise
Syracuse Retail Market
The trend with Syracuse retail properties seems to be out with the old and in with the new. At one time, greater Syracuse was home to 10 enclosed malls; that number is now down to three. Over the past few years, several have been razed completely while the rest have been converted to an open-air format. One example is Fayetteville Towne Center, which has been transformed into the area’s first lifestyle-type center incorporating retail, office and community-related tenants. This COR Development project attracted several new players to the market, including Thomasville Furniture and Carraba’s and Bonefish Grill restaurants. Wilmorite has a deal pending with Macerich for their mall portfolio, which includes Great Northern and ShoppingTown Malls in Syracuse, causing speculation as to whether new ownership will bring new tenants and renovations. Pyramid Companies [not affiliated with Pyramid Brokerage Company] has overcome political and financing hurdles in their quest to evolve the 1.5 million-square-foot Carousel Center Mall into DestiNY USA — an environmentally clean tourist destination potentially creating up to 120,000 new jobs in the process. This expansion could approach 5 million square feet, although only 800,000 square feet of new retail space is actually required to satisfy obligations.
Coinciding with the renovation trend is another whereby numerous retail properties are changing hands. Last year’s sale of Benderson Development’s portfolio of 110 centers to Developers Diversified for approximately $2.3 billion traded at an 8 percent cap rate, while on an individual basis, other recent Class A quality centers sold in the 8.5 percent to 9.5 percent range. Having established properties with upside potential to accommodate an influx of new tenants at higher lease rates seems to be the driving force behind recent sales. Add to that a stable increasing population, causing a rise in housing starts, along with pent-up demand for new places to shop.
Retail activity is spread throughout all the major submarkets, including DeWitt, Camillus, Clay and Cicero. Fueling this demand is Lowe’s Home Improvement Warehouse, Wal-Mart and Target, with new tenants entering the market and existing ones expanding within. Bed, Bath & Beyond, Sports Authority, Gander Mountain, Kohl’s, PetsMart, Best Buy, Christmas Tree Shops, and Walgreens are examples. New product is coming to market based more on tenant demand than speculative construction. Overall inventory has increased, while strip center vacancy rates have stabilized. Strong demand and new construction has led to steadily rising lease rates. Developers working the projects in the area include Pioneer Companies, COR Development, Tri-Land Properties, Widewaters Group, DDR and Benderson Development.
Downtown Syracuse is poised for retail growth to accommodate a growing demand for living quarters. Two major hotel projects have been announced, which should bolster the urban economy and convention business. Syracuse University is acquiring a 144,000-square-foot warehouse building next to the already thriving Armory Square Entertainment District to house their school of architecture, bringing additional foot traffic to downtown.
The Syracuse retail market continues to gain momentum as outside investors, along with national retailers, are starting to see its potential. As long as the national retail market remains hot, Syracuse should ride the tide with it.
— Larry Socia, Retail Division Director, Pyramid Brokerage Company
Upstate New York Industrial Market
In the Upstate New York economy, the long-suffering manufacturing sector is experiencing a rebirth. In a move from the smokestack industry of days gone by, manufacturing is redefining itself as clean and cutting-edge and is becoming one of the leaders in Upstate job creation and future growth. About half of all Upstate jobs can be attributed to the spin-off effects of manufacturing.
The Buffalo-Niagara region is looking for significant job growth in the area of bioinformatics. Typical jobs in this high-tech manufacturing sector vary from computer specialists to research scientists. Large projects that were on the drawing board just 2 years ago are now in the final stages of construction. In Buffalo, private and public sector partnership funding has produced a $290 million investment for the Center of Excellence in Bioinformatics at Roswell Park Cancer Institute. Ribbon cutting is only days away, not years.
The UB Center for Excellence in Bioinformatics.
The rebirth in manufacturing has led to a need for high bay space from 15,000 to 100,000 square feet, and a number of new projects are proposed or under construction to meet demand. The Broadway Development Park has 70,000 square feet under construction and plans for a total of 300,000 square feet. In Lancaster, East Port Business Park will boast 1 million square feet of warehouse/distribution space. An industrial park in suburban Tonawanda is being readied for 330,000 square feet.
In addition, several larger companies are expanding or developing in the area. General Motors is nearing completion of its $300 million, 700,000-square-foot plant expansion, which has helped retain 600 jobs and will continue to spur economic activity in western New York. Ford plans to invest $50 million in development over the next 5 years and CertainTeed Vinyl Fencing has built a $13 million facility on Buffalo’s waterfront.
Well-established developers in the Buffalo-Niagara region control the majority of prime development areas. However, Kissling Interest LLC out of New York City has acquired several properties and numerous Canadian developers are poised to invest in the Upstate area and will likely look to flex space or large warehouses to accommodate manufacturing and warehousing. As the Canadian dollar grows stronger, it is anticipated to have a positive influence on Upstate New York as Canadian manufacturers look to establish a presence in the United States, with Buffalo the focal point.
— Cammille Kantowski, Hunt Commercial Real Estate Corporation
Rochester Office Market
The Rochester office market comprises approximately 14.4 million square feet of competitive, multi-tenanted office space. (An additional 5 million square feet of single-tenant, owner-occupied space is classified as part of the non-competitive inventory and is not included in vacancy and lease rate analyses.) The competitive inventory is split evenly with approximately 7.2 million square feet located in the Central Business District (CBD) and 7.2 million square feet located in the suburban markets.
The Central Business District
Downtown Rochester is home to approximately 2.4 million square feet of Class A office space and 4.8 million square feet Class B and C space. Vacancy rates for Class A space have dropped sharply to 9 percent at the start of 2005 after trending upward the previous 4 years. The drop is due to a combination of a strong year for Class A leasing downtown, as well as a significant amount of space being removed from the competitive inventory that is now slated for redevelopment under an alternative use. Class B and C properties have consistently shown higher vacancy, with an overall rate of 31.8 percent. The primary reason behind this is that a few near-vacant and functionally obsolescent properties pull down the market statistically.
The Rochester suburban office market is highly concentrated in the south central and southeast submarkets, containing approximately 3.21 million square feet and 3.94 million square feet, respectively. The south central submarket’s inventory comprises 2.07 million square feet of Class A space and 1.14 million square feet of Class B space, while the southeast submarket has 2.25 million square feet and 1.69 million square feet split between A and B space, respectively. Overall, the suburban Class A vacancy rate remained stable in 2004, climbing by one-tenth of a point to 14 percent.
— Angelo Nole, Executive Vice President, CB Richard Ellis/Rochester, New York
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