By Q3 2012 the Buffalo market maintained 19.8 million square feet (msf) of office space operating at a vacancy rate of 12.8% and lease rate of $16.66 per square foot (psf) gross. The spike in vacancies over the past year is largely attributed to a revision in the inventory of buildings surveyed. The CBD supports 9.7 msf of space operating at a 12.1% vacancy rate and lease rate of $15.85 psf gross.
The suburban market supports 10.1 msf of office space and an overall vacancy rate of 13.5%. The Northtowns communities of Amherst and Williamsville rank as the region's premier suburban office location, supporting the largest inventory of space and highest lease rates. The region's inventory of class A space totals 7.2 msf operating at an average vacancy of 8.9% and lease rate of $19.42 psf gross.
While average asking lease rates have remained relatively flat during 2012, there is a growing trend for those tenants renewing leases to negotiate lower effective lease rates and increased incentives.
During Q3 2012, the Buffalo office market reported net absorption of 40,156 sf, bringing the year-to-date (YTD) total to 102,657 sf. YTD 2012, the CBD absorbed 84,594 sf of space with the suburbs absorbing 43,990 sf.
Through Q3 2012, office property sales in the Buffalo market were on the upswing with 24 transactions involving 436,334 sf of space and $19.5 million in proceeds. By comparison, for the same 9-month period in 2011 only twelve office transactions totaling 81,876 sf of space and $6.0 million in proceeds were reported. YTD 2012, Cushman Wakefield Pyramid Brokerage Company brokered the sale of the two largest office sale transactions, including the $3.3-million sale of 2350 North Forest and the $3.0-million sale of 95 John Muir Drive, both in Amherst.
During the next 12 months the Buffalo area office market will face several challenges as large blocks of space are coming up for renewal. Asking lease rates will remain flat with effective rates for renewed space likely trending lower. Net space absorption is forecast to improve slightly, resulting in a modest increase in occupancies. The possible departure in late 2013 of HSBC and Phillips Lytle from One HSBC Center could bring 740,000 sf of available office space onto the CBD market and potentially adversely impacting occupancies, lease rates and property values for the overall market.