Buffalo is not a major corporate address and does not host a major Class A office sector. Reis counts the total metro area general purpose, multi-tenant office market at just 20.2 million square feet. Its long-term profile has been as subdued as the local economy. Indeed, Moody’s Economy.com reports an unrelieved string of annual losses in office employment in the metro area since at least 2000. With little need for new office space and with little anticipated economic growth, development remains muted—and has been particularly muted since the onset of weak demand and negative absorption brought on by the recession and its sluggish aftermath. Indeed, a positive showing in 2011 was abruptly reversed (and nullified) by the 195,000 square feet of negative net absorption recorded for the first half of 2012. The 15.0% vacancy reported for the second quarter, up 100 basis points year-to-date, is the highest on Reis’ records for this market since 2005. July-August followed with an additional loss at 34,000 square feet and the addition of 20 more basis points to the vacancy rate.
Landlords could draw little sustenance from these trends. At $16.96 psf and $13.02 psf, mean asking and effective lease rates for the latest quarter were down 0.1% and 0.2% for the period and were up just 0.2% each since year-end. Landlords face additional challenges, explains Cushman & Wakefield in a second quarter report, “as large blocks of space are coming up for renewal. Many tenants may shed space and renegotiated lease rates will likely trend lower.”
Construction of new competitive general purpose office projects is minimal. Reis expects the delivery of only two, with a combined total of only 24,000 square feet all told, this year. In addition, a 65,000-square-foot owner-occupied headquarters facility is under way for Moog Inc. for delivery this November in suburban Elma. And Catholic Health has confirmed plans for a $46 million, single-tenant, 140,000-square-foot, leased build-to-suit on Kensington Expressway, Buffalo Business First reported in October. Construction by Uniland Development Company will commence later this year.
Redevelopment projects also have gained currency. The largest is Benderson Development’s One Canal Side mixed-use redevelopment of downtown’s former 160,000-square-foot Donovan Building. Phillips Lytle LLP will occupy 85,000 square feet on the top four floors, reports Cushman & Wakefield; a hotel will take floors two through four. In addition, Savarino Companies and FFZ Holdings are planning the all-office redevelopment of the 350,000-square-foot 500 Seneca Street building acquired in 2010, this source reported in a separate October report. A 200,000-square-foot first phase is planned. No tenants had been signed per the date of the report but “there are some serious discussions on going.” The city is scheduled to review the project on October 23. A revamping of downtown’s Tishmann building that would include 21,000 square feet of office space also is in the pipeline, Business First reported in September.
A portion of the stunning loss in occupancy suffered year-to-date should be regained by year-end as vacancy returns to sub-15.0% ground. Growth at about 1.0% is expected for both mean rents for the year all told. Slow improvement should follow. Downtown’s redevelopment initiatives bear watching.