The commercial real estate market in the capital region is rising out of the recession

The overall direction of the commercial real estate market in New York's capital region, not surprisingly, mirrors the trending in most markets across the country as we head into the fourth quarter of 2010. Starting in the 2nd quarter of 2008 through all of 2009 markets from Boston to Sacramento were taking it on the chin as vacancies rose to record levels for both office and industrial space in many markets. The Albany area has historically been somewhat insulated from the negative impacts a national recession has on real estate but the breadth and depth of the 2008-09 recession left some big holes to fill in the area. New York State, the single largest occupier of space throughout Albany, has increased its amount of occupied square footage over the past two decades but even the state now is actively seeking to downsize and consolidate where possible. The relocation of the Office of Equalization and Assessment from downtown Albany back to excess space at the Harriman State Office Campus is one example of the impact of the state's budget tightening efforts by OGS on the local commercial market. A more indirect but no less harmful effect of state fiscal constraints on commercial real estate has been the reluctance of businesses doing business with NYS to commit to additional square footage or long term leases due to the uncertainties of future state contracts. The industrial market in the region ballooned from consistently traditional vacancy range of 8-9% to a peak of 10.9% as of December 31, 2009. By June 30, 2010 the rate had moderated to 10.4% with increasing market activity suggesting an even lower rate will be evident by December 2010. A virtual lack of new construction in the industrial sector in 2010 will also force vacancies lower as existing spaces backfill with escalating demand without competing against new product. The GE rehabilitation of a building on its Schenectady campus for a new battery manufacturing operation continues its strong trend of creating hundreds of new jobs in the region with cutting edge technologies in healthcare, energy, and research. Otherwise, a 150,000 s/f warehouse in Florida, N.Y. for a janitorial and paper goods supply company is the only significant facility currently under construction in the area outside of the Global Foundries project in Malta. Some industrial projects completed in 2010 include the new Hero/Beech Nut plant (650,000 s/f) in Montgomery County, the Empire Merchants North (250,000 s/f) distribution center in Greene County, the Local Ocean fish production plant (160,000 s/f) in Columbia County, and Horizon Solutions warehouse (80,000 s/f) in Albany County. Global Foundries is well under construction with its new 1.2 million s/f chip fabrication complex in Malta, N.Y. This project is creating thousands of construction jobs during the build-out period and will provide upward of 1,500 permanent positions upon opening in 2012. The ripple effect of the project on future construction and new jobs in the region is yet unknown but it is anticipated that numerous suppliers and support companies will also locate into the Capital Region over the next two years. The efforts initiated over ten years ago to make New York's Hudson Valley into a technology corridor is now paying huge employment dividends between the Global Foundries project in Saratoga County and the University at Albany's nanoscience programs. Combined, these two initiatives alone are producing thousands of quality technology and research positions. The office market in the capital region is showing a greater reluctance to a rebound than industrial. Vacancies continue to rise throughout the area as the rate climbed to 12.9% as of June 2010, up from 12.3% at the end of 2009. The new Angio Dynamics 50,000+ s/f headquarters building in Latham represents the only significant new product on the mark in 2010. The downtowns of Albany (17%) and Schenectady (14.1%) continue to post rates higher than the overall regional vacancy rate. Schenectady has shown signs of improving over the past six months while Albany's rate has jumped nearly two percentage points since December of 2009. The mayor of Albany has announced some aggressive plans to encourage firms to locate into downtown by offering some tax and parking rate incentives. The overall suburban market, constituting approximately two thirds of regional inventory according to CBRE-Albany's Market Reports, has remained fairly stable over the past six months with a rate of 11.7%. It is interesting to note that the softest components of the office vacancies are in the sub 10,000 s/f sizes. Available single floor plates in excess of 20,000 s/f, suburban or in central business districts, are difficult to find. The lack of new construction in the office market over the past two years has kept the inventory stabilized and should help lower vacancy rates as the economy continues to improve. It is reasonable to state that the capital region's commercial real estate market has found its bottom and is seeking its way back up to a point of market equilibrium, but we are not there yet. Richard Sleasman, SIOR, is executive vice president of CB Richard Ellis-Albany, Albany, N.Y.