‘Restacking’ tough on local office market
A year ago, commercial landlords in the region were holding their breath as New York began rolling out a plan to “restack” its workforce — vacating privately owned office space as leases expired in order to fill empty floors in state-owned buildings.
This year, it could be warehouse owners who are caught in the state’s crosshairs as New York looks to gain additional savings through real estate consolidation.
Just how the shift of office workers to Empire State Plaza, the Alfred E. Smith Building and other properties affected the Capital Region was apparent last week as CBRE-Albany released its latest market report.
The commercial real estate brokerage said the overall vacancy rate for office space rose nearly a full percentage point by the 2012 fourth quarter, to 14.2 percent from 13.1 percent a year earlier.
In downtown Albany, the vacancy rate hit 24 percent vs. 22.4 percent in the fourth quarter of 2011; in Troy, it jumped to 19 percent from 10.3 percent a year earlier. Even in the highly desirable suburbs, the rate increased to 11.4 percent from 10.6 percent in the year-ago quarter.
The report said about 500,000 square feet of privately owned office space in the region was vacated by the state last year, with, in some cases, whole buildings affected. Two submarkets were cited as seeing the largest net impact in space vacated: Troy, at 93,000 square feet, and suburban Class B (a step below top-of-the-line Class A space), at 163,000 square feet.
And while the office restacking was mostly completed by year’s end, another 600,000 square feet of space in privately owned buildings is occupied by the state on month-to-month leases, according to CBRE-Albany.
Due to restacking, “The Capital Region office market took a step backwards in its overall recovery,” the report said.
The picture wasn’t all gloomy, as the vacancy rate in Schenectady dropped from 12.8 percent at the end of 2011 to 8.4 percent last year. And the report also noted “numerous transactions” in the second half of 2012 in which companies capitalized on low interest rates to buy the space they had been leasing.
Heather Groll, a spokeswoman for the state Office of General Services, which manages the state’s leases, told me New York expects to see annual savings of $21.5 million from the office restacking, which occurred statewide. In the Capital Region, the vacancy rate in state-owned buildings was cut in half as a result.
Asked about the state’s plans for restacking in the warehouse sector, Groll said nothing yet was firm. She said it would take about six months to inventory what warehouse space the state has and where it is located. Then, “we will evaluate the best opportunities for lease savings and disposition of excess inventory to save money for New York state taxpayers.”
About 1 million square feet of warehouse space in the Capital Region could be affected by such a plan, according to CBRE-Albany. But Richard Sleasman, president of the firm, said he expects any impact would be “very limited.”
With 62.5 million square feet of warehouse/industrial space in the region — vs. 29 million square feet of office space — any state exodus from the sector should be felt “far, far less,” he said.
The CBRE-Albany report said the local warehouse/industrial market is much improved from the 2007-09 recession, when the vacancy rate hit a high of 10.9 percent. It was 8 percent as 2012 ended.
Marlene Kennedy is a freelance columnist. Opinions expressed in her column are her own and not necessarily the newspaper’s. Reach her at firstname.lastname@example.org.