The Rochester area is seeing a drop in downtown office vacancy rates and the increased need for construction in the industrial arena.
Those were two of the findings included in the annual commercial real estate market outlook by CBRE|
Rochester, an affiliate office of CBRE Group Inc.
The report takes a comprehensive look at Rochester area economic and business news, notable developments and overall market activity.
It shows that the changing uses of downtown structures are helping to drive metro office vacancy rates down, as developers transition some of the space into city living spaces.
The vacancy rate for city office space decreased by 0.6 percentage points in 2015, to end the year at 20.4 percent, the report states.
The decrease—consistent with the past few years—was due, in part, to the trend of adapting office space for residential use. That includes larger projects currently in the works where some space is being converted from office to residential, such as Tower 280, the Sibley building and The Metropolitan, formerly Chase Tower.
With some of the region’s top developers—from Buckingham Properties LLC to Gallina Development Corp. —making major investments in downtown structures, Michael Frame, managing director at CBRE|Rochester, believes the city is on the cusp of some major developments—more so than the numbers show.
“There’s a lot of encouraging signs,” Frame said. “I wouldn’t bet against them.”
Jonathan Murray, director of marketing and research, is also bullish on Rochester’s future.
While there is still work to be done, the outlook is positive, they said, describing the current landscape as one with slow, but steady growth.
Trends they have been watching are starting to gain traction, Murray noted.
That includes growth in the downtown market as alternative uses are proposed. The work is not only removing older, dated office space from the market, it is also injecting new life into the area, he said.
The two believe the improvements will draw, in particular, two large demographics downtown to live: millennials and baby boomers.
After that base is established, commercial office growth will follow, Frame said.
Frame believes this is the most optimistic time in the Rochester area over the last 15 years, since the decline of the big three and deteriorated global economic conditions.
“Overall it’s a very positive story,” Frame said.
The report also showed that lack of industrial vacancy has companies looking for new construction.
Overall, 2015 saw the metro vacancy rate decrease to 10.2 percent, led by the suburban submarkets that ended the year at 7.8 percent. The industrial vacancy rate for the city ended the year at 13.6 percent, a decrease of 2.2 percentage points.
For much of the past two decades, most of the new industrial space introduced into the market has come from the repurposing and multi-tenanting of large corporate facilities, such as Eastman Kodak Co., Murray explained.
With those facilities filling up, industrial companies are having to look to new construction instead.
“That is something we haven’t seen at this scale in the Rochester market in quite some time,” Murray said.
The report also pointed to a surge in retail inventory for the Rochester area market for the second straight year, despite a slight drop in year-over-year project completions. The bulk of the market is primarily Monroe County, followed by Ontario County, but including portions of Livingston and Genesee counties as well.
Much of the recently completed and ongoing retail development is occurring in mixed-use projects, including University of Rochester College Town and CityGate, as well as High Point in Victor.
Notable retail projects expected in 2016 include new space at Tower 280 in downtown Rochester and new space at BayTowne Plaza in Penfield, the CBRE report indicates.
Other proposed developments hoping to gain momentum in 2016 include Fishers Ridge, a 750,000-square-foot mixed use project in Victor, and Whole Foods Plaza, an 85,000-square-foot development in Brighton.
Last year saw minimal additions to the flex inventory and strong leasing at many of the area’s flex parks, the CBRE report shows.
Those factors combined to push the vacancy rate down to 8.4 percent at year-end 2015, the lowest rate for this property type since the early 2000s, the report shows.
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