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A Year in Review: How Central PA Office, Industrial and Retail Markets Performed in 2014

Posted on February 26, 2015 by mike.kushner in Blog, Commercial Real Estate, Local Market No Comments

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…

Office

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.

Industrial

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.

Retail

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.

Our Summary/Analysis

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!

[Online Resources] Real Estate, 2014, analysis, central pa, commercial, Economy, fourth quarter, industrial, local, market, Mike Kushner, news, office, Omni Realty, overview, pennsylvania, performance, predictions, retail, review, trends

Central Pennsylvania’s Largest Retail, Industrial and Office Lease Deals in 2014

Posted on January 14, 2015 by mike.kushner in Blog, Local Market No Comments

We’ve officially closed the books on 2014 and now is the perfect time to take a look back at some of the most notable real estate transactions for the year. Not only does this give us full insight into the trends of 2014, but it also helps shape the predictions of future trends we may see coming our way in 2015.

Join us as we take a closer look at the largest lease deals that occurred in Dauphin, Cumberland, York, Lancaster and Lebanon counties for the retail, industrial and office markets.

Largest Retail Lease Deals

1. Giant Food located at 848-852 E Main Street, Ephrata signed into a lease for a 66,472 square-foot space in April 2014.

Giant Food located at 848-852 E Main Street, Ephrata

2. Regal Cinemas located at Manor Shopping Center, 1246 Millersville Pike, Lancaster signed into a lease for a 51,450 square-foot space in December, 2014.

3. GIANT located at Cumberland Market Place, 6560 Carlisle Pike, Suite 100, Mechanicsburg signed into a 45,000 square-foot space in May, 2014.

4. White Oak Furniture located at North Londonderry Square, 2-22 N Londonderry Square, Suite 300, Palmyra signed into a 38,869 square-foot lease in June, 2014.

5. Halloween Adventure located at Colonial Commons, 5070-5082 Jonestown Road, Suite 1510, Harrisburg signed into a 31,436 square-foot space in April 2014.

Largest Industrial Lease Deals

1. Georgia-Pacific located at ProLogis Shippensburg, 234 Walnut Bottom Road, Shippensburg signed into a 1.4 million square-foot lease.

Georgia-Pacific located at ProLogis Shippensburg, 234 Walnut Bottom Road, Shippensburg

2. Federal-Mogul Corporation located at First Logistics Center @ I-83, 20 Leo Lane, York signed into a 708,000 square-foot lease in September, 2014.

3. Cardinal Logistics located at Building 1, Key Logistics Park, 950 Centerville Road, Newville signed into a 570,000 square-foot lease in August 2014.

4. Lindt and Sprungli located at Bldg 4, Carlisle Distribution Center, 40 Logistics Drive, Carlisle signed into a 421,200 square-foot lease in December 2014.

5. School Specialty located at 1156 Four Star Drive, Mount Joy signed into a 400,000 square-foot lease in September, 2014.

Largest Office Lease Deals

1. Comcast located at 2801 Valley Road, Harrisburg signed into a 141,778 square-foot lease in August, 2014.

Comcast located at 2801 Valley Road, Harrisburg

2. Golden State Fruit located at 515 N Reading Road, Ephrata signed into a 25,841 square-foot space in October, 2014.

3. RMS located at 1910 Harrington Drive, Lancaster signed into a 16,000 square-foot space in February, 2014.

4. Coventry Health Care located at 3721 Tecport Drive, Harrisburg signed into a 14,566 square-foot space in September, 2014.

5. EHD.located at Greenfield Corporate Center, 1857 William Penn Way, 201-203, Lancaster signed into a 12,627 square-foot space in August, 2014.

What this means for 2015

The Largest Deals of 2014 give us some insight into what to expect in 2015. In the retail sector, owners of power centers and grocery anchored retail properties continue to rethink how they will use space to fill vacancies. Halloween Adventure and White Oak Furniture are great examples of creative re-use.

Central Pennsylvania continues to be a dominant player among major logistics markets. Industrial buildings will continue to set new records for scope, as distribution centers greater than one million square feet become more prevalent.

The office market is benefiting from market fundamentals that continue to move in a positive direction. Comcast, Golden State Fruit, and RMS are fast growing companies that have expanded operations in Central Pennsylvania. The combination of measured new construction, tenant expansion and lessening office contractions will continue to contribute to restoring health to the Central Pennsylvania office market.

Do you have an additional thoughts or questions about the largest lease deals for 2014? Join in the conversation by commenting below!

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More of the Same: Second Quarter 2014 Shows Stagnant Office Market

Posted on September 9, 2014 by mike.kushner in Blog, Commercial Real Estate, Local Market, Trends No Comments

The saying is that no news is good news, but in a recovering office real estate market, we would much prefer to see some numbers moving in the right direction. Unfortunately this is not the case for second quarter 2014, as the CoStar report shows us that Central Pennsylvania office space has hit a plateau.

On the bright side, the office market is recovering, it just happens to be across the nation in cities like Houston, San Francisco, Denver, Seattle and San Jose. Nationally, 230,000 jobs have been created and that growth is concentrated in cities with booming tech and energy markets. While growth in other cities is not as good of news as growth in our own, this is a hopeful sign of what will soon come to Central Pennsylvania.

To better understand the clustered stagnation and growth in the office markets across the United States, let’s take a closer look at first our local market and then the national market for comparison.

Central Pennsylvania Office Market – More of the Same

The vacancy rate for the Central Pennsylvania office market increased ever so slightly from 8.5% to 8.6% from Q1 to Q2 and has been hovering in the 8% range over the last twelve months. Net absorption remains negative, but did drop down to -77,901 square feet from -135, 597 square feet last quarter. There were no new buildings delivered in Q2 and the quoted rental rate is up just $0.23, or 1.4%, to $16.69. We haven’t seen this rise above $17.00 since first quarter 2012. As the numbers show, there is not much activity to report, but merely more of the same with a few expected fluctuations in the market.

Pennsylvania’s current unemployment rate is 5.7% which is equal to 361,000 people. This rate peaked in 2010 at nearly 10% and has been slowly decreasing for the past four years. For Harrisburg-Carlisle MSA, the unemployment rate is currently 4.8% or 13,800 people. In this same area, the top three industries expected to have the largest growth between 2010 and 2020 are Home Health Aides, Amusement and Recreation Attendants and Security Guards. While job growth is a positive sign for the economy, none of these top growing industries will require much (if any) office space, so a correlating impact on the real estate market is not certain.

National Office Market – Growth & Increased Demand

Looking at the Midyear 2014 National Office Market Report from Co-Star, the second quarter ended with a vacancy rate of 11.4%, a decrease from the previous quarter. Net absorption was up from the previous quarter to positive 24,525,921 square feet compared to Q1’s net absoprtion of 18,005,574 square feet. In correlation with these trends, Q2 also ended with an increase in quoted rental rates which now stand at $22.22. Additionally, 217 buildings were delivered into the market totaling 11,383,932 square feet of new office space to accommodate the growing demand.

Second quarter 2014 has the highest national net absorption since fourth quarter 2012

Most interestingly, the consumer confidence index rose to 85 in June, the highest level it’s been since January 2008. This has a strong correlation to consumer spending and impacts the GDP. What we can conclude from this national data is that the year got off to a slow start in first quarter 2014 due to the harsh winter conditions that lasted well into spring. But now, the market indicates health, growth and consumer confidence which is a welcome sign that other submarkets within the United States will also begin experiencing growth in the coming quarters.

The Takeaway

When considering all the data, we can expect the office sector leasing to become healthier, but 2014 will not be a break-out year. Rather it will take time and will likely mean several more quarters of stagnation or slow growth before we really start to see some changes. The growth will continue in the cities with heavy tech and energy markets, as these booming industries fuel jobs and demand more office space. But soon, the surrounding areas will also feel the ripple effects and begin to grow. It’s hard to accurately predict how long it will take until this growth reaches Central Pennsylvania. All it takes is a couple key businesses to accelerate the process. Until then, we should continue to keep an eye on these trends and look forward to a healthier, more active office market in the near future.

How have you been affected by the stagnant office market in Central Pennsylvania and beyond? Share your thoughts and experiences by commenting below!

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