ROCHESTER, N.Y. - In the face of multiple large blocks of space being returned to the market over the past years, Rochester's industrial and office markets, heading toward year-end 2013, continue to remain strong, according to Cushman & Wakefield and its Alliance Partner Pyramid Brokerage Company of Rochester. This can be attributed to healthy tenant and investor activity, job growth in the high-tech, education, health, professional services and other sectors, and, as always, Rochester's premier location in the heart of Monroe County. In the following interview, Pyramid's John Manilla, president, Rochester Office and David Farrington, director, Industrial Council, Rochester Office, discuss the state of the region's commercial real estate, and talk about the future of one of those large blocks of space, a former corporate headquarters campus at 2600 Manitou Road in the Town of Gates.
Let's start with industrial. How has this sector performed in 2013?
Farrington: Rochester's overall industrial vacancy rate at the end of September rested at 10.5 percent, up just slightly from 10.3 percent at the end of 2012's third quarter. Considering the amount of space vacated in the market recently, this steady occupancy rate and the region's stable rents (currently $4.24 per square foot) are fairly impressive. We have seen significantly higher leasing activity year over year; tenants made 468,000 square feet of commitments through the third quarter of 2013, compared to 284,000 square feet a year ago. Rochester typically is a market that supports smaller industrial tenants. We may see one or two transactions over 100,000 square-feet each year. Currently there are a couple of those larger requirements out in the market, which is good news moving forward.
Are you seeing any interesting trending with Rochester industrial product?
Farrington: Rochester weathered the recession without too many bumps. Now we are coming up against the challenge of an inventory heavy with obsolete or near-obsolete product. As some of our legacy tenants downsize or vacate their decades-old campuses, developers have come into the market and successfully updated and re-purposed many of these assets as multi-tenant properties. At the same time, this is limiting opportunities for larger users. As quality industrial space in the market becomes harder to find, the development pipeline will need to develop to meet the needs. In Henrietta, a 120,000-square-foot warehouse facility was recently completed. In Victor, a 22,500-square-foot building recently was completed for a technology group. Additionally, an 80,000-square-foot building for a manufacturing company, a 25,000-square-foot and a 30,000-square-foot flex buildings broke ground there this fall.
How does Rochester's office performance compare?
Manilla: The overall office market vacancy rate of 15.8 percent is down slightly from 16.6 percent at this time last year. Like industrial, rental rates have remained absolutely flat year-over-year, and rest at $18.00 per square foot. That said, Rochester's CBD office market continues to struggle with a high vacancy rate (22.1 percent at the end of the third quarter). The biggest challenge is a lack of available parking to support the tenants that could fill out the space. At the same time, our suburban inventory has seen vacancies decrease from 12.6 percent at mid-year 2013 to 11.0 percent currently. In fact, we would be hard pressed to place companies with requirements over 50,000 square feet in the suburbs.
Is the office development pipeline also picking up?
Manilla: A number of new mixed-use projects - including the Midtown redevelopment, anchored by a build-to-suit for Windstream Communications, and the Sibley Building on Main Street - are underway and re-shaping Rochester's CBD landscape. These two sites, along with many other major projects such as College Town and Eastman Business Park, will bring jobs and revitalization to a long-dormant part of downtown.
Within this context, you are marketing 800,000 square feet at 2600 Manitou Road. What level of interest are you seeing?
Manilla: We have had a healthy level of interest from local, regional and national players. Clearly, finding the right tenant to fit a space of this size is challenging - especially in a market with a much smaller typical requirement. That said, we are confident the right user is out there, and inquiries are ramping up as more people become aware of this property. The campus is one of the most technologically advanced in the market and has outstanding curb appeal. As a former corporate headquarters facility, the property contains executive offices, general offices, wet and dry labs and a state-of-the-art manufacturing area. It really is a great opportunity. While we would like to attract a single user, to the property, we do have some flexibility to accommodate multiple users with purely office or industrial-focused operations.
Farrington: It is unusual to see this type of building - with the mix of uses it offers in Upstate New York. And Rochester supports the type of high-tech client we think will be interested. This region is ripe for alternative energy ventures, pharmaceutical firms and medical device manufacturers. Significant economic development initiatives are being concentrated in those areas, with support from The University of Rochester and the Rochester Institute of Technology. One of the most appealing aspects of the 2600 Manitou Road property is that it sits on more than 100 acres, much of which is available for future development. It is well positioned to become a high-tech center.
Looking ahead, what do you anticipate 2014 will bring for the Rochester market? Manilla: We are optimists, and we anticipate more good things for our region in the coming year. We expect demand for quality industrial space to increase. We likely will see some pressure on the office market to deliver newer, more efficient product. A lot of capital is coming into upstate New York as a whole, and Rochester is well received on the investment front as a good secondary market. The market has major players like Kodak, Bausch & Lomb, Xerox, Paychex, Harris RF, Wegmans and Pictometry. The same attributes that attracted them - our university sector, strong, educated workforce and central, accessible location - continue to drive our progress today.