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Commercial real estate on the march downtown

As development in downtown Rochester marches on, efforts to transform downtown’s commercial spaces have begun bearing fruit. Overall vacancy rates fell last year, and various properties have signed new tenants or inked deals granting existing tenants more space.

That progress bodes well for downtown’s long-term future, experts say.

“While the pace of business growth in downtown Rochester will ultimately be linked to the overall health of the economy, I would say that downtown is better positioned to compete for business opportunities than it has been in the past 20 years,” says Jonathan Murray, director of marketing and research at CBRE Rochester, an affiliate office of commercial real estate services and investment firm CBRE Group Inc. “We have several key property owners that are making significant investments and are actively engaged in promoting the success of downtown.”

He adds: “We’ve also seen the development community embrace the conversion of some of our older building inventory into new uses and mixed-use projects, laying the groundwork for a more vibrant downtown community. Supporting all of this, there are demographic and workplace trends we are seeing on a national level that have contributed to the success of downtown markets across the country.”

Maria Furgiuele, interim executive director of the Community Design Center of Rochester and a residential architect, agrees that developers who have decided against using the wrecking ball deserve praise.

“Almost all the speakers that we’ve brought in to visit Rochester say a few things that are in common,” says Furgiuele, whose organization counts encouraging excellence in neighborhood and building design among its top priorities. “Number one: We have wonderful building stock in Rochester. There are some great old buildings that are perhaps in disrepair, perhaps have fallen out of use and are waiting to become something.”

She adds: “And over time, what (repurposed buildings) do for a community is immeasurable.”

According to CBRE Rochester’s Market Outlook 2017 report, vacancy in the city’s 7 million square feet of office space was 18.5 percent last year, a 1.6 percent improvement over 2015. Strong leasing activity within the Class A market—meaning prime-location offices that have state-of-the-art infrastructure and high-quality finishes—contributed significantly to the year-over-year change.

One mixed-use redevelopment helping to chip away at downtown’s commercial vacancy rate is the Metropolitan, formerly Chase Tower, at South Clinton Avenue and East Main Street. Gallina Development Corp. acquired the building in 2015 for nearly $5.4 million and has partnered for leasing and marketing with downtown developer Patrick Dutton. The project is now widely hailed as one of the most ambitious local revamps in decades.

Commercial tenants at the Metropolitan include Datto Inc., a backup and disaster recovery services provider headquartered in Norfolk, Conn. Last month, the firm announced plans to add 200 high-tech jobs using a $2.1 million capital grant from the New York Upstate Revitalization Initiative, in a move that would bring its number of employees at the Metropolitan to roughly 350.

Founded a decade ago by Rochester Institute of Technology alumnus Austin McChord, Datto outgrew its space last year at RIT’s Center for Urban Entrepreneurship on Franklin Street, once the site of Rochester Savings Bank.

Other companies have made strides recently to deepen their presence in the city.

In 2015, North American Breweries Inc. announced a five-year modernization plan at the Genesee Brewery campus on St. Paul Street that is anticipated to cost at least $50 million. The multiphase project will culminate in a Genesee Eco-Brewery District that aligns with the company’s interest in helping to sustain the neighborhood around its operation and reducing its environmental footprint.

“The goal of the project is (to create) 128 jobs over multiple years,” says Mary Beth Popp, director of corporate relations at North American Breweries.

Steps to install highly advanced brewing systems—another key goal of the project—are underway.

“The new refrigeration system was started up on Dec. 27 and is now running and providing all cooling to the current outside tanks,” Popp says. Demolition of the brew house—meaning the production center, not the retail brew house serving food and drink to the public—“has been completed, and the mash tuns (specialized brewing containers) are in the final stages of installation,” she adds.

Expanding the operation’s tasting room, museum and pilot brewery will be part of the project’s latter stages, Popp says.

Empire State Development will provide up to $4.5 million in performance-based Excelsior Jobs Program tax credits to North American Breweries in return for job creation. Through the Upstate Revitalization Initiative, ESD also will provide a $5 million capital grant. Up to $3 million of the URI capital grant is tied to the company hiring 64 people affected by poverty.

Though business expansion and job creation help fuel urban revitalization, a critical mass of residents also is essential to support “the mixed uses that you need within buildings, within communities and, obviously, within cities,” Furgiuele says.

“We’re heading in that direction with all of this wonderful development that’s happening downtown, but one thing I wish we would see more of is for-sale housing,” she adds. “Once people invest in a property in the city, then they very much take ownership of their community and take care of their neighborhood and seek out the services that they need to live.”

Still, there is reason to be optimistic about downtown’s revitalization prospects.

“Rochester may not be at the forefront of the national downtown development resurgence, but we do have many of the right pieces in place, and we have enjoyed some recent ‘wins’ in our downtown office market as well as in the residential market,” Murray says. “I would expect that trend to continue to gain momentum in the coming year.”

2/10/2017 (c) 2017 Rochester Business Journal. To obtain permission to reprint this article, call 585-546-8303 or email rbj@rbj.net.

 

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