Around Burlington, supply and demand don't add up

Chittenden County's commercial real estate market, while not quite as hot as the area's residential sector, continues to perform as vigorously as it ever has, with no grinding slowdown in sight.

Demand for office, retail and industrial space is very, very strong," says Robert Marlowe, a commercial broker with Pomerleau Real Estate. "It's the best I've seen in my 25 years in the business."

Although economic expansion in the Burlington area has been underway for several years, the current growth rate appears sustainable to veteran marketwatchers such as Marlowe. He points to stability of rental prices in the commercial market as a key indicator of sustainability.

"People realize that if they price-gouge it's all going to come down around them," Marlowe says. "Because that's not happening, I don't see any big drop coming. This is a healthy market. It's not a crazy market."

The Federal Reserve's repeated runups in interest rates over the past two years may further restrain demand, providing added insulation against inflationary pressures. Barbara Poirier, a commercial broker with Lang Associates, believes that the Fed's actions will likely lead to some slackening in at least the office sector.

"I do see suburban prices as softening a little at this point," Poirier says. GradeA space remains relatively easy to lease as soon as it becomes available, but lower-quality buildings and locales are now finding tenants harder to come by, Poirier observes.

Overall, vacancy .rates in both the office and industrial sectors are the lowest ever measured in the seasonal surveys carried out by the Allen & Cable appraisal firm in South Burlington.

Only about 4 percent of the office space in and around Burlington was found to be unleased in Allen & Cable's most recent report. That rate is all the more remarkable in that construction will increase the county's office inventory by 12 percent this year. Most of that addition is attributable to just three projects the 260,000-square-foot IDX building rising on Shelburne Road; the U.S. Immigration and Naturalization Service's new 56,000-square-foot regional headquarters in Williston; and the second Gateway building, measuring 25,000 square feet, recently built near the foot of Main Street in downtown Burlington.

Office rents are holding steady despite the low vacancy rate. Prime space downtown and in desirable suburban locations goes for $14-$18 per square foot, according to Allen & Cable.

The industrial vacancy rate in the Burlington area meanwhile stood at a modest 4.7 percent in Allen & Cable's June survey. Average rents in this sector were found to be in the range of $4.50-$6.00 per square foot.

A much larger amount of retail space is currently going unused in Burlington suburbs. Allen & Cable estimate the vacancy rate at close to 10 percent, but the appraisers describe much of this available hit "transitional" because it is being redeveloped for new occupants.

Despite the major retail expansions that have occurred in recent years, Allen & Cable see "no indication of oversupply' in Chittenden County. Storefronts on the Church Street Marketplace are renting for as much as $25 per square foot, while top-of-the-line suburban space can fetch $16, according to the appraisal firm.

Some analysts wonder, though, if shopping dollars will be able to stretch far enough when two more large consumer complexes open their doors in the next year or so. Groundbreaking is still expected this season on the Maple Tree Place mail in Williston which will include 375,000 square feet of retail space. Burlington Town Center formerly known as Burlington Square Mall - is also due to be redeveloped in 2001, with several new specialty shops set to open.

Retailers apparently have faith in the Burlington area market, says Barbara Poirier. Maple Tree Place is said to be 50 percent preleased, she notes.

The greatest potential threat to the Burlington region's economy does not lie in a surplus retail space but in an acute shortage of housing, according to Poirier and many other brokers.

"I think we're getting to a dangerous point," she warns. "Employers that are already here and some that are considering coming to the area are seeing that there's very little housing available. That's a big problem for us."

The frequent hikes in the prime rate have done nothing to dampen the upper and middle segments of the residential market, Poirier says. "There's so much pent-up demand that we could build and build for the next two years - even with a prime rate of 9.5 percent - and still not satisfy what's out there."

The main effect of the jumps in mortgage rates has been to "force people at the low end of the market to stay where they are," Poirier notes.

A recent study by the Vermont Housing and Conservation Board confirms that affordable units in Chittenden. County have become a rarity. The current housing inventory in northwestern Vermont is about 7400 units short of producing a reasonable balance between supply and demand at all price levels, according to the study.

The six-county region arced around Burlington needs to add a total of 23,600 units during the next 10 years to meet anticipated population and job growth, the study adds. Most estate brokers, however, think it unlikely that so much housing could be built in northwestern Vermont under current political and economic conditions.

Copyright Boutin-McQuiston, Inc. Sep 01, 2000
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