Buffalo’s Recent Progress: its Impact on Office and Industrial Real Estate

The welcome infusion of incentives to the Buffalo area successfully rebuilt key, aging, public infrastructure as exemplified by the Buffalo Niagara Medical Campus.   Incentives also jump-started business projects designed to increase employment in Western New York and other projects designed to train employees.

New projects and real estate transactions abound in Buffalo.   Are all segments of the Buffalo area’s  real estate market and private economy on the rebound?  Let’s examine several statistics then delve into Buffalo’s office and industrial real estate markets.

U.S. Census Bureau statistics indicate a minus 0.2% change in population from 2010 to 2016.  This is good news.  The statistics were grim prior to 2012, therefore the stabilized population in the area is a hopeful indicator.

Private sector employment increased by 4.5% from 2010 to 2017.  That is also good news.  One challenge faced by the area is the aging of the population, the reason for the importance of the industrial workforce development projects underway in Buffalo.  New, well-trained workers are required to replace the many thousands of retiring local skilled employees.

The U.S. Bureau of Economic Analysis reported a 4.5% increase from 2010-2015 in the GMP (gross metropolitan product).  This is also good news, indicating an increasingly productive economy.  Compared to the past, this is a most welcome trend.  It is, however less than half of the national average.

OFFICE MARKET

The Medical Campus, Larkinville, and Main Street Williamsville are  the “hot” submarkets.  Values around the Medical Campus are in a class of their own.  The rest of the market is “not.”

Most office sale transactions are driven by users rather than investors.  Smaller office buildings in the first-ring suburbs continue to sell to occupiers at relatively strong prices  due to very short supply.    Prices for larger suburban class “B” and flex office buildings are  relatively weaker than in the past, also purchased by occupiers rather than investors.  Office buildings outside of key first-ring suburban office markets require longer marketing campaigns, due to lower demand.

The leasing market in suburban Buffalo and in the CBD spells opportunity for tenants.  There is stiff competition for any and every tenant.  Technological obsolescence drives the space requirements down (we don’t need as many file rooms and server rooms as we required in the past), and fewer square feet  are allocated per employee in today’s office environment than ever before.   Recent build to suit projects left vacancies behind.

Landlord marketing campaigns for office-space-for-lease are challenging because of the relatively high vacancy.  These campaigns must be aggressive, creative, and proactive.  Landlords require the widest possible effective reach to correctly targeted tenants.

INDUSTRIAL MARKET:

There is short supply of inventory for lease and for sale.  Several developers are building some limited speculative projects.  They should lease up rapidly.   Prices are rising slightly.  Buildings are selling promptly to occupiers.  A well-informed buyer or tenant will have a distinct advantage.

SUMMARY

Particular segments of the market are “hot” while others are “not.”  Some fear there are a few projects reminiscent of a “Potemkin Village” but the larger picture is really  very encouraging.  Overall, there is a rising tide, although not equally in every market segment.  That is very good news for all of us.

David L. Schiller SIOR

Cushman & Wakefield Pyramid Brokerage Company of Buffalo

Associate Broker & Director of Sales

716-628-3477     716-200-0151      dschiller@pyramidbrokerage.com