A drop in the vacancy rate locally for office space, from 13% in the first half of 2023 to 12.5% by year’s end, would seem to be a good thing, right?
Not necessarily.
That’s because much of the change was due to the removal of four buildings from the overall inventory, including one in Clifton Park (150,000 square feet) gifted to the Shenendehowa school district and another in Corporate Woods (180,000 square feet) purchased by the New York State Police.
What’s more, 260,000 square feet of new medical space in Latham — representing the largest addition to the region’s office inventory since 2020 — will soon leave 460,000 square feet vacant as health insurer CDPHP and multispecialty medical practice Community Care Physicians relocate there.
Those are a few of the data points in the latest report on the Capital Region office market prepared by commercial real estate firm CBRE Albany.
The report put total office inventory at 30.7 million square feet in 2023’s second half, with 3.8 million square feet empty. Vacancies increased in the Albany, Saratoga and Schenectady central business districts, while they decreased in the suburbs due to the inventory shrink.
CBRE surveys office buildings of 10,000 square feet or more in Albany, Rensselaer, Saratoga, Schenectady and Warren counties; government and institutionally owned buildings are excluded from its reports.
Class A space, so called due to its quality, location and amenities, showed a high vacancy rate in the Albany central business district, at 26.8%. Downtown areas in Troy and Schenectady showed low vacancies, at 3.5% and 6.2%, respectively.
But Class A space also accounted for the bulk of available sublease space in the region in the second half. At more than 567,000 square feet, it amounted to 1.8% of the office inventory.
Although the space available for sublease rose for the third consecutive reporting period, CBRE also said it commanded higher rent because it was Class A.
The average asking lease rate overall for the market was $19.05 per square foot gross. For sublease space, it was $20.17.
Richard Sleasman, president/managing director of CBRE UpstateNY, an umbrella for the CBRE offices in Albany, Syracuse, Rochester and Buffalo, said the work-from home trend started in the initial COVID-19 lockdown didn’t have the impact here that it had in larger markets.
Big cities dominated by corporate headquarters saw more vacant space — and more subleasing — than we did, he said. Here, “the impacts, just by scale, weren’t as big” because we tend to have satellite offices instead.
The relocation of CDPHP and Community Care Physicians in Latham — their names are now on the new building visible from the Northway — will make more high-quality space available in the suburbs, according to the CBRE report.
But because it’s fitted up for medical uses, new tenants could be slow in coming, Sleasman said, since demand in that sector isn’t what it used to be.
“It’ll be a challenge [to refill],” he said.