Each property sector within the Central Pennsylvania commercial real estate market had its own highs and lows throughout the course of 2014. This year was particularly tough for the Central Pennsylvania office market, closing out the fourth quarter with a negative net absorption of 241,723 square feet and a high vacancy rate of 8.5%. In contrast, the industrial market saw a significant drop in vacancy rates ending the fourth quarter at just 6.0% – the lowest it has been since before 2011. The retail market’s absorption rates and quoted rental rates went up and down with each quarter, alerting us to some interesting market trends.
To really see the whole picture as to how the Central Pennsylvania commercial real estate market performed in 2014, we need to look at each sector closely and separately. Most importantly, this data will shine a light on some trends we can expect to see carried into 2015 and beyond! Let’s get started…
Vacancy and Availability: From the first quarter to the fourth quarter of 2013, vacancy rates dropped from 9.1% to 7.9%. In 2014, these rates quickly rose to 8.3% in the first quarter and slowly crept up to 8.5% in the fourth quarter. Closing the year out with 4,274,727 square-feet of vacant space indicates that this high vacancy rate will hold strong for a while longer.
Absorption and Demand: The Central Pennsylvania office market ended fourth quarter 2014 with a negative net absorption of 88,815 square feet. No new buildings were added to existing inventory and the total RBA stayed exactly the same throughout the year at 50,389,828.
Rental Rates: From the beginning to the end of 2014, quoted rental rates also slowly climbed from $16.48 to $17.15. This is the highest rate the market has seen since first quarter 2012.
Vacancy and Availability: The Central Pennsylvania industrial market saw a significant drop in vacancy rates, ending fourth quarter 2014 at 6.0% which is the lowest this rate has been since before 2011. The vacant square-footage available is the lowest it’s been in four years, ending 2014 at 14,620,392 square-feet.
Absorption and Demand: 2014 started off with a net absorption of 585,280 square-feet. It reached its highest point in the year in the third quarter with 2,260,906 square-feet, but dropped during the fourth quarter, closing out the year at 834,256 square-feet. One new building was added to existing inventory, bringing the total to 3,358. The total RBA increased from 243,124,494 in the first quarter to 243,821,836 by the fourth quarter.
Rental Rates: Over the course of the past four years, quoted rental rates have remained relatively stable. 2014 continued this trend. The year began at $3.92, dropping to $3.87 in the second quarter, then to $3.86 in the third quarter and finishing off the year at $3.95.
Vacancy and Availability: During 2014, the vacancy rates for the Central Pennsylvania retail market dropped from 6.2% to 5.8%. This 0.4% change made 2014 the lowest vacancy rate we have seen since before first quarter 2011. The vacant square-footage also decreased from 4,923,566 in first quarter 2014 to 4,576,145 in the fourth quarter.
Absorption and Demand: 2015 was an interesting year for net absorption in the retail market. Each quarter saw notable change; first quarter began at 61,080 square-feet, rising to 431,459 square-feet in the second quarter, followed by a major drop to negative 20,668 square-feet in the third quarter before ultimately ending the year at 58,580 square-feet. The market also gained four buildings in existing inventory, taking the total RBA from 79,432,940 in the first quarter steadily to 79,554,890 by the fourth quarter.
Rental Rates: 2014 began the year at $11.19 per square foot – the second lowest rental rate the market has seen throughout the past four years. The rate then jumped to $11.49 in the second quarter, followed by a dip to $11.26 in the third quarter and then closed out the year out at $11.48.
The Central Pennsylvania Office Market was the weakest of the three major commercial property sectors in 2014. The year ended with negative net absorption of 241,723 square feet. The Harrisburg West Submarket contributed heavily to that number as reported in my January 2014 blog – “Harrisburg’s Class A Office Space Takes Major Hit in First Quarter 2014.” The combination of limited new construction, tenant expansion, and lessening office contractions should help to heal the office sector in 2015.
The Central Pennsylvania Industrial Market continues to dominate the Pennsylvania industrial property sector along with the Lehigh Valley Market. Net absorption topped 4 million square feet for the year. This trend will continue into 2015 with 6.8 million square feet under construction.
2014 was the second consecutive year that the Central Pennsylvania Retail Market absorbed over 490,000 square feet. The York County Submarket led the way with accounting for close to 50% of the absorption. The final takeaway, expect to see this slow but steady growth continue into 2015.
How did 2014’s office, industrial and retail markets’ performance affect you either personally or professionally? Join in the conversation by commenting below!