Capital Region commercial office market: Beyond the headlines

March 10, 2014 - Upstate New York

Eric Simonds, CBRE | Albany

The Capital Region's overall office vacancy rate at the end of 2013 was 14.3% (Source: CBRE-Albany Office MarketView 4Q2013). This is up slightly from Q4 2012 of 14.2%. If one simply reads this ten basis point shift there isn't much intrigue or allure. Quite frankly it sounds like nothing really happened or that things are just "steady." This is an easy conclusion to reach without first dissecting the numbers to uncover the real story behind the numbers. And stories there are so I'd like to share a few of those with you.
Lets start with downtown Albany. In Albany's central business district the overall vacancy rate is 23.68%, which is substantially higher than the overall Capital Region vacancy rate of 14.2%. However, lets anatomize this further by class:
* Class A: 16.92%
* Class B: 22.28%
* Class C: 63.41%
63.41% is a startling vacancy rate, but what isn't mentioned is that the inventory (total s/f) is decreasing as some of these functionally obsolete class C buildings are being converted from office use to residential apartments/condos. At the conclusion of 2013 there was more than 160 residential units under construction or in the planning process. This trend can have positive ramifications for the CBD office market. First, removing these vacant class C buildings will certainly help lower the Albany CBD vacancy rate to reflect the true market conditions. The second impact is less immediate and perhaps more speculative. It is reasonable to believe that as more people are living in downtown Albany, they may also have the desire to work in downtown, thus enhancing demand for office space. Perhaps companies will shed the old adage that office space is a cost of doing business in favor of the viewpoint that office space can be a tool for doing business better.
The two standouts (in a good way) in the Capital Region office market in 2013 were Troy and Schenectady. Vacancy rates for both finished the year under 10% and clearly outperformed the national rate of 14.9% (Source: CBRE Office MarketView 4Q2013). Troy went from a 19% vacancy rate at the beginning of 2013 to 9.9% at the end of 2013. Likewise, Schenectady is also experiencing strong office demand. We are seeing new leases consummated downtown as well as major redevelopments, such as Galesi Group's investment in the Alco mixed-use, redevelopment project. Add to this the recent investments in residential conversions and you see the incredible optimism that surrounds both the Schenectady and Troy markets.
Elsewhere in the Capital Region's suburban market we have seen increases in both sale and leasing activity. The overall suburban vacancy rate ended the year at 12.1%. New construction projects have added to our 29 million s/f inventory, including the new 21,000 s/f Funeral Directors headquarters, Unity House's recently completed 36,000 s/f building in Troy, 38,000 s/f of mixed-use space at Socha Plaza in Glenville, and the soon-to-be-completed Capital Communication Federal Credit Union's 117,000 s/f headquarters to highlight a few.
We've also seen a few sale-leaseback transactions; the largest of which being the State Farm Insurance property in Malta which was incorporated into a twenty three property portfolio and sold to an investment fund. Coincidentally we have also seen some consolidation and attrition of other insurance companies in the Capital Region.
The most active sector of the Capital Region office market is most certainly medical office. Not only are the area hospitals investing in expansions and/or renovations on their own campuses, but also expanding off campus as well. One can't drive down I-87 through Saratoga County without noticing several newly constructed medical office buildings. This demand-side trend will continue well into 2014 as both hospitals and private practices continue to strive to meet the needs of our aging population.
All too often we see published reports and news headlines and reach our own conclusions, which may or may not be accurate. My hope is that I've demonstrated a need to dig beyond the headlines to get the information behind the story. Having the details can help you immensely when you are facing commercial real estate decisions for your business.
Eric Simonds, CCIM, is a salesperson at CBRE | Albany, Albany, N.Y.
Thanks for Reading!
You've read 1 of your 3 guest articles
Register and get instant unlimited access to all of our articles online.

Sign up is quick, easy, & FREE.
Subscription Options
Already have an account? Login here
Tags:

Comments

Add Comment