Buffalo Area Industrial Real Estate Overview, May 15, 2020
A healthy and well-oiled “machine.” That characterized the industrial real estate market in the Greater Buffalo area up to this writing. All of us are now on the watch: there are clouds on the horizon due to COVID-19.
Q4 of 2019 was marked by somewhat 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 remained at historic highs through the first three months of the health crisis and the resulting economic slide into recession. Deals continued to close, and new leases and acquisitions were contracted during this challenging period. What is next?
As of this writing, inventory remains very limited, more limited than the number of prospects seeking space solutions. A secret to Buffalo’s relatively steady, if unexciting, growth is the very limited amount of speculative industrial construction. Decisions are carefully calculated. Nobody ever anticipated and counted on a boom, therefore we are not in a position later for a “bust.”
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 in April by REITs in the industrial market were highest among all market segments: 99.2%.
Although we remain in the shadow of the ongoing crisis, the following factors combine to suggest valuations in the industrial are unlikely to drop, unless a severe and long recession ensues:
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.
David Schiller SIOR
Associate Real Estate Broker
Cushman & Wakefield/Pyramid Brokerage Company of Buffalo