Buffalo Area Industrial Real Estate Overview, August, 2020
Greater Buffalo’s industrial real estate market is characterized by a severe mismatch between supply and demand: supply remains very limited.
My recent transactions of note:
Fabrication building in Tonawanda, a sale is primed to close to a growing local company.
Growing distributor in Cheektowaga increasing its capacity by 50%.
Tonawanda manufacturing and fabrication building now under contract to a growing company.
There are fewer tenants and buyers seeking an apparently ever-shrinking inventory of spaces for lease or buildings to purchase. Economic indicators confirmed the modest slowdown in growth. Nonetheless, lease rates and sale prices remain at historic highs through August 2020. Deals continued to close, and new leases and acquisitions were contracted during this challenging period. What is next?
Expansions by local manufacturers and distributors are the key drivers.
Inventory remains more limited than the number of prospects seeking space solutions. Buffalo’s relatively steady, if unexciting, growth, is limited by the negligible amount of speculative industrial construction.
Will supply of space increase due to closures? There is growing uncertainty and some are asking of themselves and about others: “who will make it?” The solid sectors include: food processing, pharmaceuticals, e-commerce, chemical companies, and general distribution.
As we all pitch in with masks and social distancing to help “flatten” COVID’s “curve,” lease rate and sale price “curves” are also “flattening.” The numbers plateaued. This is in stark contrast to the pressure on both landlords and tenants in the office and retail market segments. According to NKF, rent collections by REITs in the industrial sector were highest among all market segments.
The following factors combine to suggest valuations in the industrial are very unlikely to drop, unless a severe and long manufacturing crisis ensues:
- Construction costs continue to rise. Buying and modifying existing structures remains a favored option, supporting current valuations.
- Interest rates remain very low, supporting the current valuations.
- Industrial real estate is the most stable asset class at this moment.
- The mismatch between supply and demand favors landlords and sellers.
- “Onshoring” is not just a “myth.” I just initiated lease negotiations with a company expanding by 50% to 100,000 sf. Part of this picture is return of some of its manufacturing back home.
How can a buyer or tenant find solutions when supply is so very limited? Signs and internet only show some of what is available. What might become available? What will be available in the near to mid-term? The process requires best possible information and a willingness, and ability, to effectively and accurately research the targeted submarkets.
Leasing, renewals, contraction, and expansion require strategic planning and the best possible tactical steps. Lease recasting, blend and extend, and market-driven renewals assure best possible agreements for both parties. Landlords and tenants are in the same boat: both want to stay afloat.
For specifics about your real estate requirements locally, regionally, nationally, or internationally, call me for a confidential, no-obligations meeting.
Stay healthy!
David Schiller SIOR
Associate Real Estate Broker
Cushman & Wakefield/Pyramid Brokerage Company of Buffalo
716-628-3477
david@schillerSIOR.com
VISIT: schillerSIOR.comIndustrial Market Report Graphic v2
