By RICHARD MULLINS and DAVID TYLER
STAFF WRITERS
WILL YURMAN staff photographer
Kevin Wagner hangs wallpaper at Cross Keys Office Park in Fairport. By January, Xerox Corp. plans to vacate enough rented space around Rochester to hold 23 Wal-Mart stores, seven Bausch & Lomb towers or a 3-foot-wide bike path from Rochester to Buffalo. [Day in Photos]
(August 31, 2003) — By January, Xerox Corp. plans to vacate enough rented space around Rochester to hold 23 Wal-Mart stores or seven Bausch & Lomb towers.
Xerox’s moves will put significant amounts of office space on the market at a time when Rochester already faces a glut of vacant commercial space, driving down prices and forcing landlords to be more aggressive at finding new tenants.
“ It’s flooded the market for office and warehouse,” said William Boulter, a Webster-based landlord who owns several buildings that Xerox leases. “ This has done to the east side what Kodak moving out of Elmgrove did to the west side.”
The move out of leased space could save Xerox about $23 million a year in rent, company officials say, and help better organize workers around Rochester, which is still one of the company’s largest locations worldwide.
“ Our strategy is to continue to look at our base of leased space and consolidate wherever feasible,” said John Farnan, manager of Monroe County real estate planning at Xerox. “ We still have vacant space in places we own and will look at moving operations into there as leases expire out there.”
The moves rank among the largest of their kind in Rochester. Xerox is exiting buildings in Fairport, Brighton, East Rochester, Webster and downtown.
“ We’ll weather this,” said Michael Frame, managing broker at CB Richard Ellis’ Rochester office. “ How long it takes to absorb this space is going to depend on the economy.”
The project has no formal finish line, officials said. But Xerox is about two-thirds through a process of shrinking its local real estate holdings from 10.3 million square feet to 7.9 million, shedding nearly all the space it rents here — roughly 6 percent of the rentable commercial property space in all of metro Rochester.
“ We’re a little beyond halftime in this,” Farnan said.
Xerox has a simple goal: to look at space needs after every cutback, shed any rented space the company can and consolidate remaining employees in company-owned properties.
The cutbacks of recent years have rejuvenated the company’s finances. They also have shrunk the work force from 14,150 people in Monroe County in 1999 to 9,000 now.
In some cases, Xerox has shut down a business division, leaving no workers to move.
One example is the small office/home office division that marketed desktop machines such as low-cost inkjet printers. After Xerox shuttered that unit, it left 250,000 square feet of rented space on Publisher’s Parkway in Webster, mainly warehouse space. Other company operations still remain in an additional 125,000 square feet of space there.
Xerox also scaled back a business that makes wide-format printers for engineers and architects. That was one reason the company completely vacated two buildings in East Rochester with 170,000 square feet of space.
Xerox’s cutbacks also resulted in extra space at company-owned buildings downtown and in Webster and Henrietta. And Farnan said Xerox is spending millions of dollars in Rochester to improve and renovate those sites. Some of the leased space is being vacated to fill the empty offices in these buildings and save rent money.
“ I have met with every landlord we have in town to brief them about this,” Farnan said.
“ We try to be straightforward and face-to-face about this,” he said. “ As soon as we know what impact there might be on their facility, we try to give them as much forewarning, so they can start any marketing they may need.”
Farnan recognizes that moving so many workers out of rented space has jolted an already depressed commercial real estate market.
“ I think if it was just us alone (vacating space), probably there wouldn’t have been a tremendous impact,” Farnan said. “ But the fact is the rest of the economy is hurting, and Kodak and Bausch & Lomb are also (consolidating). When one person on a team has a problem, it’s not a major problem. But when the whole team has problems, everyone is affected.”
Farnan said he has not studied the Xerox shift’s direct impact on local real estate prices, though as an observer of the market, he said he would guess rental prices are down “ 25 to 30 percent.”
Xerox plans to retain its owned space around Rochester, including the massive Webster complex with 5.5 million square feet of space, the Xerox Square building downtown with 800,000 square feet of space and the Jefferson Road facility in Henrietta with 600,000 square feet of space.
Area real estate observers say the local real estate market is already feeling the impact of Xerox’s consolidation.
“ Most all of their space was good quality space,” said Frame of CB Richard Ellis. While asking prices for space haven’t dropped, the final prices negotiated by landlords and tenants have, Frame said.
The move has put pressure on landlords to find tenants, said Kevin Bruckner, owner of The Commercial Listing site, a local real estate information Web site.
“ Generally, each space Xerox leaves is a large chunk of space, and the owner has to go in and divide it up for new tenants,” Bruckner said.
Bruckner said Xerox’s consolidation is one reason there’s a three-year supply of office space on the market right now.
“ You’re not going to see any really new construction unless its build-to-suit or medical office space,” he said.
Developer Lewis Norry says while the Xerox consolidation hurts, the real problem is that there are no new tenants to take the space.
“ I guess we as landlords could go out and strangle each other (for tenants) but that’s never been our (modus operandi), and it’s never been the MO of a lot of Rochester developers.”
Economic development officials, Norry said, need to recruit new tenants to town.
Because landlords pay property taxes, whether or not their property is rented, Xerox’s moves won’t have a direct impact on local property tax revenue.
However, local towns are still feeling the impact of the real estate changes.
“ The Techniplex here is dead center in the middle of the village, so it drew a lot of attention when Xerox left — and had an impact immediately,” said Fred Ricci, village administrator in East Rochester. “ The Techniplex people have tried their thing to fill the space. Now they need some help and we’re working with them to get some occupancy for our little economy, because those people who left shopped at our shops, ate at our restaurants and we’ve felt that loss here. … The only plus is we have more parking available.”
Ricci said his staff will now apply for state grants that could help pay for improvements to the building structure; new paving on parking lots and other changes that could help landlords lower rent prices and attract new tenants.
“ As a single office complex, this is still probably our largest or second largest space,” Ricci said.
The consolidation is prompting landlords to change their strategies. Uniland Development of Buffalo owns the Cross Keys Office Park in Fairport, where Xerox is leaving 40,000 square feet of the 80,000 square feet it rents there.
Karen Lewis, Uniland’s local manager, said the developer has had to adapt by renovating the space for new tenants. It also sought a tax-saving Empire Zone designation for the property to make it easier to attract tenants.
Uniland is spending a “ significant” amount retrofitting an entire building for multiple tenants, Lewis said. Space Xerox once used for research is becoming office space, with a completely new floor plan.
“ You can rest on your laurels or you can push ahead and try to attract new tenants,” she said. “ We’re viewing this as an opportunity.”