When it comes to the best opportunities for commercial real estate in the Rochester region in the next few years, the sky truly remains the limit.
“There really isn’t a bad sector to be in,” said Amanda P Shisler, vice president, relationship manager-CRE for Evans Bank, a Buffalo-based full-service financial institution with locations in Fairport, Penfield, Perinton, and Irondequoit.
In commercial real estate — which encompasses properties used specifically for income-generating purposes — there are several key sectors or asset classes, including office, industrial, multifamily housing (ex. apartment complexes), retail and flex (lightly zoned space that can be used for a myriad of purposes).
The 2023 Rochester CBRE|Rochester’s annual Real Estate Market Outlook, which was released last month, showed good news in many of these sectors. One was industrial, which had a vacancy rate of 5.1% for year-end 2022. This rate is about 1% higher than the national average and well below the 10-year average.
Among the key market developments in Rochester’s industrial sector in 2022, the CBRE report points to Amazon’s new 2.6 million square foot robotic solution fulfillment center in the Town of Gates which, after some delays, is expected to open early in the third quarter of 2023. Amazon’s $412 million project is expected to create 1,000 jobs.
Other key market developments per the CBRE report were C&M Forwarding Company’s continued expansion in the Town of Chili, CooperVision breaking ground on a 150,000-square-foot expansion in Erie Station Business Park and development at the new Wiregrass Business Park in the Town of Henrietta.
“We continue to see strong growth in the industrial space,” said Charles J. Vita, executive vice president – chief lending officer of Canandaigua National Bank & Trust, who notes Rochester’s industrial sector is currently anchored by a need for warehousing, research and development, and flex spaces. “We expect industrial to continue to be strong.”
Industrial is one of two sectors that “jumps out” to Shisler as prime for continued opportunity in the years ahead. The other is multifamily.
“As a nation and especially in Rochester we have a housing shortage,” Shisler said. “There isn’t enough stock, especially in the affordable housing range.”
In January 2023 New York Governor Kathy Hochul announced a statewide strategy to address New York’s housing crisis by building 800,000 new, affordable homes for rent or ownership over the next decade. Per the Population Reference Bureau, in 2020, 51% of renters in New York renters were housing-cost burdened, meaning that they pay more than 30 percent of their income on rent.
One of the ways the state hopes to meet this goal is to incentivize the repurposing of underutilized office parks and strip malls as multifamily housing.
“Multifamily jumps off the page,” said Vita, among the best opportunities for commercial real estate in the region in the years ahead. This is very much due to supply-driven issues. He notes there is currently not enough supply of individual, single-family homes in the Rochester region to keep up with demand, which has led to more interest and need for multifamily spaces.
2022 showed record high prices for single-family homes sold in Rochester coupled with a historically low number of homes for sale and a fall in sales. New listings in 2022 fell 8.5% to 15,718 according to the housing market report released by the Greater Rochester Association of REALTORS® (GRAR).
The GRAR report also showed 13,601 closed sales in 2022, which was the lowest since 2014 when there were 13,134 closed sales.
In addition to multifamily and industrial, both Vita and Shisler feel there are opportunities in other sectors as well, but developers will need to be selective and innovative.
Shisler is seeing companies “getting creative on redevelopment projects,” especially in the retail space. She sees more retail operations changing their footprints and keeping more products on hand. This is due to supply chain issues and changes in shopping preferences brought on by the pandemic such as increased use of retail delivery and pickup services like Instacart.
The Rochester retail vacancy rate for year-end 2022 was 8.9% per the CBRE report, which notes a rebound in brick-and-mortar retail sales in 2022 that is expected to continue in 2023. The report also notes a trend of reusing stand-alone or mall-based big-box retail sites, which “[has] a significant impact on both the retail property sector, as well as non-retail sectors.”
Key market developments in retail to look for in 2023 per the CBRE will be the opening of the Rochester area’s first Whole Foods Market in the town of Brighton and the completion of the University of Rochester Medical Center’s $227 million, 330,000 square foot orthopedic and physical performance center at Marketplace Mall.
John McDonald, vice president, senior commercial real estate relationship manager for Genesee Regional Bank, adds flex space as another segment to watch closely in 2023 and the years ahead.
The sector had a 14% vacancy rate for year-end 2022, up slightly from 2021. The flex market has had a notable impact on the traditional office and industrial markets, per the CBRE, which explains “flex product currently built out for office use will continue to feel the impact of post-pandemic uncertainty in how office occupiers will utilize space going forward.”
New flex spaces were limited in 2022, but the CBRE points to site work underway at Ontario Gateway Business Park in the Town of Farmington as a key market development. The 140,000-square-foot project will include a mix of flex and retail.
“Because of the pandemic the office segment has had to adjust,” McDonald said. “Business owners and landlords are adjusting what their needs might be and that’s going to take a few years to figure out.”
Caurie Putnam is a Rochester-area freelance writer.