Joe Rowley with Bob Richard, NAIOP Upstate New York preisdent.
While job growth in Rochester and Western New York is somewhat stagnant, the view for commercial real estate developers is moving in the right direction according to Joe Rowley, Managing Broker, SVN | Realty Performance Advisors, who delivered his Rowley’s Rochester Report 2018 to NAIOP members and guests at Locust Hill Country Club on Jan. 25.
“Retail, office and industrial vacancies are down,” Rowley said. “It is great to see the revitalization. Some spaces that have been vacant for a decade are now occupied.”
Over the last 18 months, Rowley and the team at SVN have generated over $50 million in sales and leasing.
Rowley said dozens of Rochester-area businesses are expanding, going through a laundry list of developments in Rochester and its surrounding suburbs:
General Electric announced it will keep its Rochester plant open, retaining all 90 employees. “We have a lot of high tech individuals in the workforce, a great testament to the Rochester market.”
About 2,000 new residential units are coming online in Rochester. “While it’s a pretty minimal amount,” Rowley said the new housing products are focusing on amenities, which renters are looking for.
Eastman Business Park has about 60 tenants. “When you add up the former Kodak companies, there are still 20,000 to 30,000 employees there.”
Rowley said bonuses being handed out by U.S corporations (a result of the federal tax cut) could impact Rochester commercial real estate developers: “I think there is going to be a trickle down, hopefully in New York state. We are open for business. It’s a question of how competitive we can be against the rest of the country.”
Record stores, video stores and retail have all felt the effects of disruptive technology as mobile devices forever changed the landscape of the customer experience.
The same thing is happening in the commercial real estate industry.
Kane Willmott (above), CEO of Toronto-based iQ office Suites addressed members of NAIOP Upstate New York in Buffalo on Jan. 23, talking about the emerging trend of coworking, which provides a shared workplace. These products were often intended for independent contractors, but many large corporations are also adopting the concept. iQ Office provides a customized shared office rental solution.
“The iPhone changed everything,” he said. “It has had two effects: it untethered us from traditional ways of viewing products and services and how we receive them. It also reduced friction in the buying process. The companies that got in early have been substantially rewarded.”
Willmott pointed to Apple, Netflix and Uber as companies that and digitized the marketplace.
WeWork, with a $20 billion valuation, is doing the same thing in the office place. Ironically, WeWork’s landlord, Boston Properties, a publicly-traded company, has a valuation just one-third of WeWork’s.
“Office leasing was very much a product,” Willmott said. “Coworking has untethered the tenant from a traditional lease and from the security deposits. WeWork has presented leasing as a service.”
He sees new wave of growth coming from companies large and small.
A majority of potential coworking clients are microbusinesses, enterprises with fewer than five companies, including the owner, which represented 92 percent of all U.S. businesses, translating into 26 million jobs according to the Association for Enterprise Opportunity.
“More and more Fortune 500 companies are coming in and using our spaces: short term, long term and for meetings. They are seeing this as an alternative for their workspace solutions. I think it will be very difficult for traditional landlords to compete with this space in the future,” he said.
Willmott predicts when the coworking market comes, it will come fast. “If you don’t already offer coworking, you’re going to have to try to catch up,” he told developers. “Those who have the infrastructure in place will be at an advantage. This gives you access to small tenants and you can charge more when you don’t have to lock into a long-term contract.”
Patrick Whelan, Executive Director, Niagara Global Tourism Institute, also spoke, addressing incubators and accelerators as alternatives to traditional office environments.
“The whole idea of coworking is flexibility,” he said. “This has been commercialized and taken to another level by companies like WeWork. I don’t think there are too many companies that are going to grow to a point they are going to sign a traditional lease. There are hundreds of start-up companies in Buffalo and not many are signing traditional leases.”
Whelan said startups are scared to sign a lease, so now they are operating out of coworking spaces where there is flexibility, driving the market to more and more coworking solutions.
NAIOP Upstate New York president Bob Richardson, said it is insightful in the way the office market is evolving into more coworking solutions. “We have an opportunity in Buffalo to see what’s happening in other cities around the world and benefit from how that office market is changing and how we can apply some of those lessons.”