Written by nereal on August 22, 2016
Chittenden County Market Review
The following article was published in the July 29-August 4, 2016 edition of the New England Real Estate Journal and was produced by Nedde Real Estate.
A Strong Commercial Market in Chittenden County Vermont
Chittenden County has experienced a growing, changing commercial landscape. In 2015 GlobalFoundries took over IBM’s microelectronics plant in Essex, which plans to invest $72 million in capital in the plant. BioTek Instruments, who produces microplate instrumentation and bio-analytics software in Winooski, recently began construction on a 22,000 SF addition, indicative of a healthy business and employment landscape for Chittenden County. Indeed, the unemployment rate in Vermont has seen continued improvement having dropped from 3.7% in May 2015 to 3.1% in May 2016. The national unemployment rate was comparatively higher at 4.7% in May 2016. The Vermont economy has seen an overall increase in employment opportunities over the last year.
Chittenden County is experiencing an extended period of business expansion and a rebounding economy, which has resulted in a balanced industrial market showing positive growth. Current vacancy is 5.4%, down slightly from 5.8% in December 2015 and competing with the historic rate of 7.3%. In 2016 there has been 105,000 SF of new construction industrial space added and absorbed. This includes a 20,000 SF food manufacturing facility in Catamount Park in Milton, two buildings totaling 12,000 SF at Shelburne Green in Shelburne, a 25,000 SF addition at the Farrell warehouse/distribution facility on Holmes Road in South Burlington and a 40,000 SF building developed by Don Weston for National Chimney in Williston. In the second half of 2016 we are expecting an additional 27,000 SF in Milton to be constructed and immediately absorbed. Overall, rental rates remain stable and the market is only slightly undersupplied.
There is a consistently limited supply of retail space in Chittenden County. Coupled with growing consumer spending, this has resulted in an undersupply that should encourage new development over time. At the current vacancy rate of 4.8%, we are competing with both the 5.0% December 2015 figure and the historic average of 6.5%. The redevelopment of the downtown Burlington Mall will affect this figure. Construction plans include adding a 1.5 acre public rooftop park, 250 apartment units, convention-center style hotel, new underground parking garage, 225,000 SF retail space and 150,000 SF of office to the existing 160,000 SF. Outside of the Central Business District, Essex is receiving a new mixed use development project to include a four story building with 15,000 SF of ground level retail/commercial space and 51 residential units. We expect to see continued growth in the retail space market into 2017.
The rental market has been consistently strong in Chittenden County, resulting in significant new apartment construction over the past 2-3 years. As a result, the vacancy rate currently sits at a slim 2.1% with a 2.9% average annual rent increase and a 6.8% average CAP rate. This is still higher, however, than the historical average of 1.6%. It is no surprise, then, that developers have focused on the residential market and in 2016 are adding 600 new units, the largest number of new apartments constructed over a one year period since the early 1990’s. These additions will primarily be built in Burlington, Essex and South Burlington. Notable new projects are 101 new affordable housing units, 44 market rate, age restricted units coming online in Colchester and South Burlington and 30 units to be constructed in the former Burlington Free Press building in downtown Burlington. Future growth is expected to include thousands more units with the help of the new Building Homes Together campaign, a task force coalition that is seeking to combine the efforts of developers and town officials in an effort to add 3,500 new housing units of varying market rates to the Chittenden County market over the next 5 years.
The office market in Chittenden County remains over supplied with weak demand and high vacancy rates, particularly in the suburban markets. With a vacancy rate of 9.6%, office vacancy is 1.5% higher than the historic average of 8.1%. Office vacancy is lowest in Burlington’s Central Business District where you will find mostly Class A and Class B spaces. Despite some modest improvement, we expect the office market in Chittenden County to be over supplied for the foreseeable future with 76,000 SF of planned office development for 2016. The most significant new supply is 54,000 SF of Class A space at 88 Technology Park Drive, South Burlington.
*Data provided by The Census Bureau, Bureau of Labor Statistics, Homefacts and June 2016 Allen & Brooks Report.