NORTHEAST SNAPSHOT, OCTOBER/NOVEMBER 2010
UPSTATE NEW YORK OFFICE MARKET
The Greater Capital Region office market is basically “steady as she goes” for right now. With no major exits of any large space users within recent history, the market has managed to remain stable with some concessions entering into lease renewals and new leases.
Issues relating to demand are more focused on tenants evaluating their current configurations and future needs. Most tenants are trying to find ways to reduce their footprints through the adoption of technology and using good planning in their layouts to reduce their needs. Demand for small spaces continues to show signs of strength, but tenants continue to seek concessions from landlords. Buildings with large blocks of space are fewer and further between and those with the most modern formats and facilities remain at the top of the list when it comes to satisfying the national and regional tenant requirements.
Vacancy rates have stabilized following the general contraction of corporate America. The Central Business District areas have incurred the highest volume of recent vacancy, but they appear to have stabilized, and certain submarkets are showing signs of declining vacancy. While these vacancy rates are slightly higher than last year at this time, we see a positive trend emerging as tenants seek a format that better suits their specific needs, resulting in absorption.
All of these factors lead to the impact the occupancy rates have on the investment sales activity within the marketplace. No major transactions have occurred within the past 12 months. We have owners with a desire to sell, but a market that has not determined in which direction it will go. In addition, the availability of mortgage financing remains limited. Furthermore, a major portion of the great Capital Region market is held by local investor/developer firms that are well positioned to ride out the storm to a stronger market — or they intend to remain viable through passing the assets to family members. This single factor has caused property values to remain relatively stable.
However, the stability of the market will be tested once the Global Foundries facility opens in Malta in the first half of 2012. This $6 billion facility will drive the need for space in all categories in a direction that has not been seen before in this market. While the ability to build new buildings still remains a viable option in many instances, we cannot anticipate speculative construction starting before tenants sign leases, and lenders start lending based on commitments from tenants. This will bode well for current owners in the Saratoga/Malta submarket, and will spark new development that will deliver product to the market in categories not currently available within the market.
The greater Capital Region/Tech Valley market will begin to feel the rumblings of new development and alternative format development, since many of the necessary formats the technology industry requires are not part of the standing inventory. Problems relating to the development cycle will cause existing inventory rents to rise until such time as the development community can get the pipeline filled with the product types needed by this market. The major impact coming to the market will be grounded in the technology arena, and it will cause change within the design and formats that get developed to support this market segment.
As for our predictions, we see a strong foundation in the Class A suburban category in the core markets of Colonie and Clifton Park. We foresee substantial growth in Saratoga County in close proximity to the Global Foundries facility, resulting from the related businesses that will have to locate nearby to support the foundry and the related support companies. The issues related to growth will only be hampered by the lack of liquidity within the capital markets. However, time will help calm the seas, and the demand from technology-based companies will keep the wind at our backs.
— Howard Carr is president of The Howard Group/TCN Worldwide.
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