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Growing Demand for “Live-Work-Play” Communities in Central PA

Posted on December 4, 2018 by Mike Kushner in Blog, Commercial Real Estate, Community, Guest Blogger, Local Market, Trends No Comments

Photo: Walden in Mechanicsburg, PA

If you’ve been a resident of Central Pennsylvania for more than a few years, you’ve likely seen various live-work-play (LWP) communities – maybe you even live in one. What we’re talking about it mixed-use commercial and residential real estate where people have the opportunity to live, work and play (shop, dine, etc.) all in a relatively close distance to one another. A great example is the Walden community in Mechanicsburg, but there are many others that we will examine in this article.

To help us explore this growing trend, we turned to Chris LeBarton who is a Senior Market Analyst with CoStar Group. Chris covers commercial real estate data in Western Maryland, including the Baltimore metro area, up through Central Pennsylvania for CoStar’s Market Analytics platform.

Chris joins Mike Kushner of Omni Realty Group for a Q&A series where we specifically look at the growing demand for LWP communities in Central PA – and what this means for CRE professionals. Here is how Chris answers our most pressing questions.

Omni: When did the LWP trend begin and how has it grown?

Chris LeBarton: The earliest usage of LWP spaces I can find was in 2005. The trend really started to grow in popularity leading up to the market crash, but there’s no correlation between the two that I can see. The term “live-work-play” was very likely used prior to that, but I’m guessing the branding of mixed-use development really took off as concepts of ‘walkable urbanism’ and ‘Transit Oriented Development’ (TOD) exploded across the country.

According to the Urban Land Institute’s Mixed-Use Development Handbook, which was published in 2003, mixed-use development: provides three or more significant revenue-producing uses (such as retail/entertainment, office, residential, hotel, and/or civic/cultural/recreation); fosters integration, density, and compatibility of land uses, and; creates a walkable community with uninterrupted pedestrian connections.

Omni: Describe a LWP community in Central PA.

Chris LeBarton: First, let’s clarify what a LWP community really is, and what it is not. Some economic development entities and marketing types play pretty fast and loose with the term. An area can be a really nice place to live, work and play in, but if there’s over a mile or so between one element of the triad and the other two legs of the stool aren’t in the same building/development, it’s not really a LWP dynamic. Of course, the likelihood that most people who live in one of these communities also works in the same office/industrial park nearby is fairly low. But being able to do all three and be largely reliant on public transportation or your own two feet is really the spirit of the LWP concept.

Another key element to understand is that LWP is not at all relegated to a city environment. In fact, part of these projects’ collective appeal is that they can recreate a city environment without being in the hustle and bustle of a CBD. Specifically in Central Pennsylvania, there are a number of LWP developments. Here are just a few:

Lime Spring Square (Lancaster/Hempfield Township): A multi-phase, mixed-use campus being developed by Oaktree Development Group, the end result will include over 100,000 SF of retail, several hundred high-end apartments, and components of office, medical and industrial space. Penn State Health has a 76,000 SF medical office building there, while PDQ Industries is expanding operations into an 80,000 SF building.
North Cornwall Commons (Lebanon/North Cornwall Township): Another phased project that has been delayed off and on since being proposed in 2004, North Cornwall Commons is finally seeing movement at what would be the largest mixed-use development in Lebanon County history. A retail strip center with at least one confirmed tenant (a local coffee business) is underway at 148-acre site that includes plans for roughly 165 townhomes, office space and a hotel.
The 1500 Condominium (Harrisburg): An example of how you don’t have to have everything in one place, 1500 has 43 units (mostly rentals) that sit over top of two restaurants and is within walking distance to the Broad Street Market and several small-to-medium sized employers.
Wyomissing Square (Reading/Wyomissing Borough): A quintessential brownfield redevelopment, Wyomissing Square now consists of 250 4 Star apartments, a Courtyard by Marriott, small-scale retail, restaurants, and a 60,000 SF medical office building.

Omni: Who is the target demographic for this type of community?

Chris LeBarton: As with anything that deals with where people live, shop/eat or work, I think the answer is “All of the Above.” We hear all too often about Millennials, or Boomers, or Downsizers, or Divorcees. Honestly, the more conversations I have with leasing agents and brokers the more I’m convinced the rule is diversity and the exception is homogeneity. Granted, most of these LWP sites cater to the more upscale or educated among society, but that doesn’t mean there can’t be families with two working blue collar parents who make a decent living and who want to save money on a car/parking and live close to work.

Omni: What advice could help commercial real estate professionals capitalize on the LWP trend?

Chris LeBarton: I don’t give investment advice, but here are a couple thoughts. First, find a way to make it authentic. Be it the retail mix, or a unique concept to the green space, or simply having the “town center” not look boiler plate, be conscientious of that buzz word “place making.” If you’re going to basically spend the majority of your waking life in a small area, it can’t be boring or cookie cutter.

Next, think ahead. What will you need to provide 3-5 years from now? Who would have thought that cities would be crawling with scooters?! Or even just electric vehicles. People looking to walk or be publicly transported or drive as little/cheaply as possible will likely demand options and flexibility. Things to consider are multiple charging stations, bike share platforms, car-share parking lots, etc.

Finally, identify fairly gentrified but not-yet-there locations that are retail/grocery deserts. LWP in the middle of a depressed community won’t work in many places (there are exceptions, of course). But cool/changing areas that are the next ‘it place’ often still need the food and fun to complete the shift.

Omni: Looking to the future, how do you predict LWP communities to evolve in Central PA?

Chris LeBarton: I think you can expect to see more of these types of projects turn up around dying malls or outlet centers that have to repurpose big blocks of space. Another interesting new trend that I could see taking off is the rise of co-living and co-working spaces in the same building.

The LWP trend stands to have a significant impact on Central PA’s commercial real estate market. Because LWP communities rejuvenate the local community, drive business and create employment opportunities, Central PA should be encouraged that so many of these communities are popping up across the region. Additionally this type of real estate appeals to a wide variety of demographics, making it a valuable investment opportunity for commercial real estate professionals. Looking to the future, LWP communities could be among the most powerful tools to breathe new life into struggling areas, and spur a burst of new economic activity that is greatly needed.

What are your thoughts on the growing demand for live-work-place communities in Central Pennsylvania? Is this type of community attractive to you? Why or why not?

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6 Things in 2018 that Should Have Commercial Real Estate Agents Feeling Grateful

Posted on November 13, 2018 by Mike Kushner in Blog, Commercial Real Estate, CPBJ Articles, Local Market, Trends No Comments

Note: This article was published by the Central Penn Business Journal. Click here to read the original version.

It’s about that time when people start to reflect upon the last year, making note of progress that has been made, and milestones that have been achieved. In light of the Thanksgiving holiday, there are certain things that should have commercial real estate agents, in particular, feeling grateful for what 2018 has brought with it.

Here’s a look at six things that should have CRE professionals giving extra thanks this year – and looking to 2019 with high expectations.

Interest rates are still historically low.

Yes, interest rates are indeed rising and people are panicking over them reaching 6%, but keep in mind that we are still way below the average rate of the last 47 years at 8.35%. Furthermore, recent gauges of U.S. inflation signify little need for the Fed to change its slow-but-steady stance on interest rate hikes at this juncture, so we don’t expect this to jump up several points overnight. Plus, there are a lot of other factors working in the economy’s favor like…

Unemployment hit a 49-year low.

It’s the headline you’re seeing smattered across every major news publication – the U.S. unemployment rate reached 3.7 percent in September — the lowest it has been since December 1969. What’s more, the job market is so tight that the amount of available jobs far exceeds the number of people seeking employment! Employers reported more than 7 million unfilled jobs in August, the highest level since record-keeping began in 2000.

Demand for industrial space remains strong.

In Central PA, 2018 brought with it an increasing demand for industrial real estate. The third-quarter saw rent grow hit 6.9%. When compared to the historical average of just 1.9%, it’s easy to see how this boom in demand for industrial space is an exciting new trend for our local economy, particularly because we are poised to welcome more and more warehousing and distribution companies to the area.

Sales of multifamily real estate hits record high.

In the third-quarter, multifamily real estate sales set a new record with the all-time high of $160.6 million. This same sector set another record this year in the second-quarter with an all-time low vacancy rate of 4.3%. With just two numbers, 2018 paints the picture of Central PA’s thriving commercial real estate market, particularly in the multifamily sector.

The Fed raised short-term interest rates for a third time this year.

At its September policy-setting meeting, the Federal Reserve raised short-term interest rates for a third time this year. While to some a rate increase may not be something that has you feeling grateful, this is yet one more indication of a healthy, growing economy that can sustain such an increase. Furthermore, forecasters contend that unless inflation picks up or the economy starts slowing, the federal funds rate, which is currently between 2 percent and 2.25 percent, should continue to head higher.

New industries are expanding their commercial real estate.

The sixth and final thing that should have commercial real estate agents feeling grateful this year is healthcare mergers. Why? Because this is shaking up the way healthcare systems are approaching real estate. Across the region, the Commonwealth and nationwide we are seeing mergers taking place between healthcare systems small and large. All of this “teaming up” is causing a change in the way these organizations are using commercial real estate. In some instances, such mergers call for consolidating medical office space to reduce redundancy. In other instances, more space is needed to break into new markets or regions. This burst of acquisitions and activity spurs growth and fuels CRE sales.

Gratitude…and Caution

It’s important to note, this is the highlight reel from 2018. The CRE market has certainly experienced both its ups and downs in the various sectors of retail, office and industrial real estate. What’s most important is to take all good news, and bad news, with a grain of salt and know that what goes up, will eventually come down – whether that’s next quarter, next year or next decade.

For now, we can slide into the holiday season feeling grateful for these “gifts” the market has given us this year and enter 2019 cautiously optimistic.

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How Will Trump’s Tariffs on China Impact Commercial Real Estate?

Posted on August 8, 2018 by Mike Kushner in Blog, Commercial Real Estate 2 Comments

Note: This article was published by the Central Penn Business Journal. Click here to read the original version.

Earlier this summer, President Donald Trump approved tariffs on about $50 billion dollars in Chinese imports. Some fear this is certain to escalate a trade war between the world’s two largest economies. While others argue the short-term setbacks are outweighed by the long-term political and economic benefits. Which side will prove to be right? Only time will tell.

What we can expect, with a great deal of certainty, is that these tariffs will have a ripple effect on the United States’ commercial real estate industry. CRE professionals should be on high alert for several, short-term impacts that stand to reshape the investment decisions we make for the next five to ten years. Keep in mind, the tariffs must still undergo a review process, with hearings this month; however, should they be approved, here are the near-future impacts CRE professionals must be prepared to manage.

Higher Permanent Debt Costs and Construction Costs

CRE professionals should prepare for a 10-Year Treasury of about 3 ½ to 4%. Additionally, it’s reasonable to expect an increase in both permanent debt costs and construction costs. Higher prices for commodities, like steel, will hurt construction and infrastructure projects. The U.S. is already seeing more than 5% materials inflation in construction, and given these recent actions, it’s reasonable to predict this number could rise as high as 10%.

CRE Renovations Over New Construction

If the prices of construction materials increase as expected, this will change the landscape for how CRE professionals are investing in commercial real estate. An increase in raw material prices (aluminum and steel) would accelerate the trend for inflated construction cost that has already been going for years. Foremost, higher construction costs will make buying an enhancing existing commercial real estate the smarter investment over new construction.

Temporary Decrease in GDP

Even though the third quarter is normally the strongest quarter of the year, the addition of these tariffs could cause the GDP to fall below 3% this fall. However, this decrease in GDP will only be temporary if Trump prevails. It will take a patient economy to “ride the wave” until 2019 when it’s expected that GDP will reach 4% with exports rising.

Increased Inflation

In the short-term, these tariffs and counter-tariffs are predicted to add to the currently elevated 2.8% annual inflation. Let’s not forget that this inflation has already caused the Fed to raise rates in June and provides guidance for two more hikes in the second half of 2018.

What This Boils Down to for Commercial Real Estate

Commercial real estate (as well as residential real estate), is intricately linked to virtually every aspect of our nation’s economy; we often look to our construction and housing markets as a barometer to gauge current economic temperature, endurance, and vulnerability. The recent tariffs not only increase the costs of materials, but they may also ignite a global trade war, both of which can have a significant, negative impact on both local and national commercial real estate.

However there is one positive angle to consider. While much of the industry may feel the squeeze of elevated costs, the recent aluminum and steel tariffs don’t mean doom and gloom for the entire commercial real estate vertical. There is one sector that actually stands to benefit from the recent market flux: current property owners. Landlords of existing buildings won’t have to worry about increasing rents to cover new and unforeseen materials costs. These building owners can offer extremely competitive rent prices to potential tenants, ultimately undercutting the competition and stealing market share.

What other impacts do you anticipate Trump’s trade tariffs to have on the United States’ economy, within CRE or beyond? Do you feel short-term impacts outweigh long-term benefits or not?

Join in the conversation by leaving a comment below!

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How to Prepare For a Commercial Business Relocation

Posted on June 25, 2018 by Mike Kushner in Blog, Commercial Real Estate No Comments

For any business who has navigated the challenges of moving into new office, retail or industrial space, you likely learned some valuable lessons along the way of things you would choose to do differently if you had to do it again. A commercial business relocation has a major impact on company culture, customer service and your bottom line. For this reason, it’s critical to be strategic about how you approach your move to set yourself up for a smooth and seamless transition.

To provide valuable insight on the topic of commercial business relocation, Omni Realty interviewed Dick Michaelian. Dick is a principal of Relocation Consulting & Management, Inc (RC&M) located in Mechanicsburg, Pennsylvania. Having been in the moving and storage business for over 36 years, with 26 of those with RC&M, Dick has helped local, state and federal governments, schools, colleges, healthcare, courthouses, museums and corporate businesses successful relocate to new facilities.

We asked Dick to answer five important questions regarding commercial business relocation covering everything from the biggest challenges to planning for a successful move. Take a look at Dick’s insight and advice that can be applied to any business or organization considering a relocation.

Omni: What are the biggest factors that cause businesses to relocate?

Dick Michaelian: The number one factor is change. While that sounds quite simple, it can be very difficult for an organization to change. Growing, shrinking, change of ownership or leadership are all examples of change. Other factors include the expiration of a lease or sale of a building as well as a desire to change a location because of customers or taxing entities.

Omni: For businesses considering a relocation, what are the most important details they should think through?

Dick Michaelian: A business should begin with the end in mind. How do you want everything to look and operate when the move is completed? From there, you should work back to where you are now and then determine how much time, money and effort will be required to get to where you want to be. Businesses often under estimate the amount of resources required for a good, effective relocation.

Another consideration is how to maintain your level of productivity during the transition. The last thing that should ever happen during a move is for a customer to be told “we can’t be of service to you because of our move.” The entire relocation should be virtually invisible to customers!

Finally, a business should strongly consider what and how it wants to change as a result of the relocation. Change will happen whether it is desired and planned or spontaneous and intrusive.

Omni: How early should businesses begin to plan for their relocation?

Dick Michaelian: The planning should begin as soon as the decision is made that the business is going to move. I’m working with a client now whose move is planned for late 2020 and they want to get a clear picture of what is required for their budget. Planning can never begin too early. The actual implementation of the plan usually begins about four to six months prior to the relocation.

Omni: Describe your recommended planning process for corporate relocation.

Dick Michaelian: The planning process begins with leadership setting the path and goal. From there, it’s getting everyone to work together using the same data. Effective communication is critical. A ‘team’ approach works best, utilizing resources from different facets that will be playing a part in the move – large or small: IT, procurement, facilities, operations, administration and leadership. It’s essential to have a “big picture” perspective of the project while assigning expectations and due-dates to the players.

Once the plan is agreed upon and set, any changes should be well considered. You never want to change a plan in the middle of the move. That rarely proves successful in the end, as often the goal changes as well.

Omni: In your experience, what factors most commonly impact the success of a business’s relocation?

Dick Michaelian: The single most important factor are people moving. The reliability of the planning team members and their dedication to the success of the project is critical. No one person can be responsible for a fantastic move – it’s a team effort. However, one person can really make it hard for everybody else if they don’t want to move or change. Management has to set the tone. Getting the different elements to buy into the change that needs to occur is difficult; but, with the right vision and passion, good leaders will help their organizations through the necessary transition. I always enjoy observing this process with successful businesses.

Moving can be very difficult. Good leaders who recognize that they are in the “people business” have the most impact on the success of a relocation.

Another factor is timing. You never want to move until the new space is ready. And yet, most relocations occur without a new, completed space. Construction delays, last minute changes and contractors not performing are the major causes of this situation.

You can create a great new working environment for your business; but, if the move goes poorly, that’s what everyone will remember. Don’t underestimate the vital importance of a well-planned, smoothly executed relocation from beginning to end!

Is your business considering a relocation to new retail, office or industrial space? What piece of advice did you find most helpful? Join in the conversation, or ask a question by leaving a comment below!

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How Omni Realty Uses Research, Skill and Experience to Benefit Our Commercial Real Estate Clients

Posted on June 4, 2018 by Mike Kushner in About Us, Blog, CCIM No Comments

When in search of a service or product, you’re likely to start with a Google search. These results will lead you to visiting some potential businesses’ websites and possibly their social media pages. You may feel like you’ve gathered enough information based on the quality of their online presence, reviews and word of mouth recommendations to choose the right business to fit your needs.

But how often do you consider a business’s mission statement in this decision making process? If you don’t, you should!

A business’s mission statement (or lack thereof) will tell you a lot about their focus, approach and how they treat their customers. A nice website, active social media and high ranking reviews only paint part of the picture of the quality of the company – and what they stand for.

For the benefit of our clients, whether they be past, present or future, we hope to give you deeper insight into our own mission so you can understand what we value and our commitment to serving you!

At Omni Realty, our mission is to secure the most effective space at the most favorable terms for our clients. We use research, skill and experience to offer unmatched, highly personalized service while carefully determining our clients’ needs and analyzing all possible solutions.

But our mission statement is more than just words on paper. The values it represents are closely woven into our daily client interactions as well as our long-term visioning. Here is how Omni Realty strives to live out our mission with everything we do.

Current and Consistent Research

We are strategic about maintaining access to the industry’s most comprehensive database of commercial real estate through our partnership with CoStar. Even though we specifically serve the Central Pennsylvania market, we have access to a combination of reliable tools, resources, and expert analysis on over 5 million commercial real estate properties in today’s market. This allows us to pull and compare market reports, keep a pulse on emerging trends and give our clients valuable advice even if it’s outside of our market.

Additionally, we have access to the most technologically advanced industry tools including:

Esri ArcGIS and Business Analyst – demographics and mapping
DataVu – business list data
Riskmeter Flood Maps – assess flood hazards and generate reports
RealNex MarketEdge – financial analysis

High-Level Skill

Mike Kushner is a graduate of University of Pennsylvania (Penn) with his degree in economics. This education is combined with Mike’s CCIM Designation, making him a uniquely qualified commercial real estate broker, developer and investor. CCIM stands for Certified Commercial Investment Member and requires advanced coursework in financial and market analysis. The CCIM designation demonstrates extensive experience in the commercial real estate industry. Furthermore, CCIM designees are recognized as leading experts in commercial investment real estate.

As part of Omni Realty’s mission, developing this high-level of skill is essential to offering our clients unmatched expertise backed by confidence. Just a few of our uncommon, but highly valuable skill areas include:

Property Management
Raw Land Development
Historic Rehab Property Development
Chairman of Local Zoning Hearing Board
Expert Witness Testimony

Diverse Experience

Skill can only be grown when it is applied. Over the last 25 years of being a licensed real estate broker, Omni Realty has grown a diverse portfolio of experience. We have served over 500 clients, brokered 1,250 commercial real estate deals and have helped businesses of all sizes and industries find the most effective space at the most favorable terms. Our diverse experience also includes extensive property management, both residential and commercial.

We love sharing our experience and applying it toward delivering favorable outcomes for our clients. Experience gives us negotiation power on behalf of our clients, a leg-up on emerging market trends and a vast network of contacts that we call upon to help our clients overcome any number of challenges, both inside and outside the scope of commercial real estate.

Unique Value Proposition

We understand that other businesses may tout that they are “different” and it can be confusing to cut through the clutter and determine which commercial real estate business truly offers a unique model. First, when we say we work with businesses of all sizes, we truly mean it. From a one-person startup looking for co-working space, to a Fortune 1,000 organization looking to develop a growing campus, we are excited to work at both ends of the spectrum because we are excited to see our locally-based businesses thrive.

Second, our skill and expertise comes at no cost to our clients. As an exclusive tenant representative/buyers agent, Omni Realty is compensated by the landlord or seller, not by our client. This also means we come to the table to represent only you and your interests. There is no conflict of interest like there might be if a single agent represented both the tenant and landlord in a commercial real estate transaction. Finally, our service is highly personalized and highly hands-on. You work with only the principals in our firm; and we are responsive and proactive in our communications.

With a better understanding of our mission, and the various pieces involved in bringing our mission to life, we hope you can see why Omni Realty is in a unique position to serve our commercial real estate tenants and buyers. And remember, a business’s mission should not be taken lightly. When looking to work with a commercial real estate broker in Central Pennsylvania, be sure to assess their mission and compare it to your own. The most successful partnerships come from businesses and clients who work together over a shared mission!

Have a comment or question? Join in the conversation by leaving a comment below.

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Major Trends Impacting Central PA’s Retail Real Estate Market in 2018

Posted on May 24, 2018 by Mike Kushner in Blog, Local Market, Trends No Comments

For Central Pennsylvania’s retail real estate market, things are off to a, well, interesting start. The market has seen its fair share of ups and downs in recent quarters, and 2018 is no exception. On one hand, major retailers continue to shutter brick and mortar locations across the Susquehanna Valley. At the same time, other retailers are making the move into new locations. It can be hard to grasp what’s really going on in the market. Does the good outweigh the bad? What will the next quarter bring? The next year? For the answers, we turn to an expert.

Senior Market Analyst with CoStar Group, Chris LeBarton covers commercial real estate data in markets stretching from Western Maryland, including the Baltimore metro area, up through Central Pennsylvania for CoStar’s Market Analytics platform. His insight and expertise are helpful for understanding not only where the market currently stands, but how it’s likely to move in the future.

Chris joins Mike Kushner of Omni Realty Group for a Q&A series where we specifically look at the current state of Central Pennsylvania’s retail real estate market – as well as trends and challenges that stand to reshape things in 2018 and beyond. Here’s how Chris answers our most pressing questions.

Omni: With a net absorption of almost 95,000 SF, the Harrisburg East Retail submarket had a great bounce back quarter in Q1 2018 after four consecutive featuring net move outs. Can you elaborate on the various factors contributing to this?

Chris LeBarton: Retail leasing on the east side of Harrisburg has been fairly whippy this cycle, and certainly since 2015. So, putting too much stock into it is unwise. Minus Hobby Lobby’s move into almost 70,000 SF at Colonial Commons, this looks like less of a win. With that said, there are some strong pockets of buying power (median household income x households) in this submarket, including parts surrounding Colonial Park. In fact, Dauphin County has been one of the faster-growing counties in Pennsylvania since 2010.

Omni: What were the largest lease deals that took place in Central PA’s (Harrisburg East and Harrisburg West) retail real estate market in Q1 2018?

Chris LeBarton: Hobby Lobby’s move-in was the standout for sure, but there were a couple other sizable deals in the region. There was 15,000 SF leased in Carlisle on Newville Road and Ideal Auto Body absorbed 11,000 SF in Hanover. Also, Generations of Furniture signed a three-year deal on roughly 8,100 SF in Lancaster.

Omni: Amidst recent, massive retail closings, how would you say Central PA has responded/rebounded? What factors contribute to your assessment?

Chris LeBarton: Few areas are immune to the wave of big-box retail closings; stores like Kmart, Sears, Boscov’s, Macy’s and Toys R Us were once ubiquitous across the country. But a review of the biggest names shows fairly limited exposure in Central PA. Simply based on population density, natural tourism corridors, and buying power, this region isn’t swimming in malls and power centers. A review of a dozen or so metro areas inside Central Pennsylvania shows that, overall, vacancies are largely where they were coming out of the crash and in some cases improved.

In addition, several retailers that did not have a presence in Central Pennsylvania have absorbed space vacated by some of the big box closings. Stein Mart, Home Goods, and Hobby Lobby moved into the former Kmart on the Carlisle Pike. In Lower Paxton Township, Hobby Lobby opened in the former Giant Foods location and Giant moved across the road to the space vacated by Gander Mountain. At the Capital City Mall, Field and Stream moved into the former Toys R Us location. Overall, Central PA should feel encouraged that the region was no by means hit the hardest, compared to others. In fact, some significant regrowth has occurred as a result of many of these retail closings.

Omni: In your opinion, what are some of the future trends you expect to see in the Central PA retail real estate market?

Chris LeBarton: Mixed-use projects offering at least live-play (work there, or nearby, is an added bonus) with smart ground floor retail are all the rage. If areas outside of the major urban centers want to grow their population, they need to think about approving these types of projects. Naturally occurring affordable housing is becoming a big draw for those who want a nice place to live, but don’t want the high price tag. Developers who are trying to overcome the challenges of rising land and labor costs are looking more and more at secondary and tertiary markets, and there’s no reason Harrisburg can’t accommodate small-to-midsized projects with local/authentic retailers.

Another trend on the rise is related to the last piece of the “last mile” industrial craze and e-commerce. Central Pennsylvania is booming with warehouse and distribution construction; as a result, the biggest population centers in the region may see retailers testing new concepts here. Amazon Key, a home delivery service, opened in close to 40 cities last fall, and Walmart is doing all it can to keep up with the biggest player in the space. It would be reasonable to think that such trends could make their way to the Central PA retail real estate market as well.

While technology and the shift in the way consumers prefer to shop and purchase goods has had a significant impact retail real estate, we can expect the market to react and adapt – just like any industry must to stay afloat. The key to survival is for retailers to stay in front of emerging trends, keep an eye on competitors, and be willing to evolve.

How do you feel Central PA is responding to the changes and challenges taking place in the local retail real estate market? Are you more hopeful or more concerned? Share your thoughts by leaving a comment below!

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10 Facts Any Commercial Real Estate Investor Should Know about Central PA’s Industrial Market

Posted on April 30, 2018 by Mike Kushner in Blog, Commercial Real Estate, Industrial, Local Market No Comments

10 Facts Any Commercial Real Estate Investor Should Know about Central PA’s Industrial Market

Central PA’s industrial real estate market is unique for a variety of different reasons. Taking into consideration its geographic, demographic and economic factors, we’ve compiled a list of what we feel are the most important facts worth knowing about our local industrial market.

If you are a commercial real estate investor, or simply someone who wants to know more about Central Pennsylvania’s commercial real estate market, you are sure to find this list of top 10 facts both valuable and interesting. Let’s take a look!

Harrisburg-York-Lebanon CSA is 3rd most populous in PA and 43rd most populous in U.S.

The Harrisburg-York-Lebanon Combined Statistical Area (CSA) is made up of six counties and includes four metropolitan areas in Central Pennsylvania. In 2010, the CSA’s population was 1,233,708 people, making it the 3^rd most populous CSA in PA and the 43rd most populous CSA in the U.S. The Harrisburg-York-Lebanon CSA includes the following Metropolitan Statistical Areas (MSAs): Harrisburg-Carlisle, Lebanon, Gettysburg and York-Hanover.

Harrisburg area puts up strong competition against Lehigh Valley.

Though Lehigh Valley is commonly recognized as Pennsylvania’s leader in warehousing and distribution, Harrisburg delivered only 600,000 SF less than Allentown in 2017, while also generating roughly the same rent growth. Additionally, companies such as Whirlpool, Amazon, Ace Hardware, FedEx, Kohler, and Lindt Chocolates have set up large-scale warehouse and distribution centers in Harrisburg – and those tenants account for just a portion of more than 16 million SF of net absorption.

Harrisburg-Carlisle and Lancaster Ranked Among Leaders in National Job Growth

Of the 25 metro areas with the fastest job growth, as of August 2017, both Harrisburg-Carlisle and Lancaster placed on this competitive list. Lancaster ranked number 24 for its steady growth as it diversifies its economy and renovates its downtown and industrial areas. In six months Lancaster added 3,100 new jobs, bringing its total employment to 252,400 and 2017 growth rate to 1.23%. Harrisburg-Carlisle ranked number 8 on the list with 6,200 new jobs added in the first two quarters of 2017, bringing total employment to 346,100 and 2017 growth rate to 1.82%. Noted was the area’s diverse group of healthcare, technology and biotechnology businesses.

Prime location for warehousing and distribution.

Central Pennsylvania is a premiere market for industrial space for several compelling reasons. For businesses who need easy and affordability storing and shipping of products, the areas offers a great roadway system, an abundant work force, relatively inexpensive and available raw land, and the ability to reach 70 to 80 percent of the U.S. population in 24 hours. Additionally, our government regulations on warehousing and distribution are comparatively easy and straightforward compared to other nearby states or regions.

Four of the 10 Select Top Industrial Leases in Q4 2017 took place in the Harrisburg market.

According to CoStar’s Q4 report for 2017, Harrisburg east and west markets represented the majority of top industrial leases signed that year. Prologis Carlisle (1,029,600 SF), Goodman Logistics Center Carlisle (1,007,868 SF), Prologis Harrisburg (623,143 SF) and Carlisle Distribution Center (575,000 SF) were all leased to different businesses who were looking to grow their industrial real estate space in Central Pennsylvania. This activity indicates economic growth and interest in Central PA’s industrial real estate market, both from businesses and real estate investors.

Lancaster market has the highest quoted rental rate for industrial space in Central PA at $4.69 per SF.

Even though Lancaster’s quoted rental rate for industrial space decreased by $0.45 per SF than where it was at the end of Q4 2016, it still comes in higher than Central PA’s other surrounding submarkets. At $4.69 per SF, Lancaster is $1.41 per SF higher than Lebanon, $0.03 per SF higher than Harrisburg/Carlisle, $0.08 per SF higher than Gettysburg and $0.67 per SF higher than York/Hanover based on Q4 2017.

Lancaster also has the lowest vacancy rate for industrial space in Central PA at just 2.0%.

Lancaster ended Q4 2017 with the lowest vacancy rate of all surrounding submarkets. Compared to Lancaster’s vacancy rate of 2.0%, Lebanon came in at 15.8%, Harrisburg/Carlisle at 6.8% and York/Hanover at 4.9% based on Q4 2017. Though Gettysburg did end 2017 with a vacancy rate of 0.4%, it’s important to note this submarket has just 78 buildings with a combined 4,372,179 SF of existing inventory which places it at a much different level than the other submarkets, comparatively.

Within the MSA, Harrisburg/Carlisle has the largest SF of industrial space under construction at 1,813,468 SF.

Two significantly large industrial projects will soon result in the addition of 1,813,468 SF to the Harrisburg/Carlisle submarket. Comparatively, Lebanon has three buildings under construction with a combined 1,310,195 SF of space, Lancaster has two buildings under construction with a combined 76,486 SF of space, York/Hanover has two buildings under construction with a combined 895,000 SF of space and Gettysburg has no new industrial space under construction. For Central PA as a whole, that equals 4,095,149 SF of new industrial space that will soon be delivered to the market.

Harrisburg/Carlisle’s ended 2017 with a positive net absorption of 2,700,108 SF.

According to CoStar’s Q4 2017 industrial market report, Harrisburg/Carlisle ended the year with the highest, positive net absorption we’ve seen since prior to 2014. At 2,700,180 SF, this is significantly higher than any other quarter that year, especially Q2 where the net absorption dropped to negative 499,576 SF. Additionally is Q4 2017, one new building was delivered to the market, adding 1,100,000 SF of space. Even with this influx of inventory, the net absorption rose by 2,083,756 SF. The new building that was delivered is Whirlpool’s new distribution facility located at 100 Fry Drive, Mechanicsburg.

Influx of State and Federal dollars will continue to improve transportation in and around Central PA.

The Trump administration has recently been touting a $1.5 trillion, 10-year public-private plan to improve roads, bridges, ports and other infrastructures across the nation. Central Pennsylvania has plans to utilize some of this federal funding to bolster its priority projects which include fixing structurally deficient bridges and widening interstates. Improvement to our roadways and infrastructure will improve public safety, create construction jobs and make Central PA an even more attractive location for warehousing and distribution.

After reading through these top 10 facts any commercial real estate investor should know about Central PA’s industrial market, you are likely to have some comments or questions of your own.

Start a discussion by leaving a comment below!

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Top Commercial Real Estate Projects to Impact Central PA

Posted on February 26, 2018 by Mike Kushner in Blog, Commercial Real Estate, Construction, Local Market No Comments

There is a lot of different commercial construction activity taking place in Central Pennsylvania. Looking at the top commercial real estate projects to be delivered in 2018, there are two retail projects and 4 Class A industrial projects that will enter the market, bringing with them new businesses, jobs and consumers. Let’s take a closer look at these top projects to better understand the likely impact they will have on Central Pennsylvania’s economy both now and into the future.

RETAIL

Lancaster County has two retail real estate projects under construction that are projected to have a significant impact on jobs and the economy. The anchor stores for each of the two projects are supermarket brands we have come to know and love – and ones that will surely attract consumers far and wide.

The smaller of the two projects is the Crossings at Conestoga Creek, located on U.S. Route 30 in Lancaster. The 90,000 square feet of retail space being developed will be anchored by Wegmans which will become the county’s second largest supermarket, trailing only Shady Maple Farm Market in East Earl, which is 150,000 square feet. With annual sales of $7.4 billion, Wegmans is the nation’s 32nd largest supermarket chain.

The Crossings, which sits on a 90-acre site between Toys R Us and the Lancaster Post Office, is being developed by High Real Estate Group. This new retail space will create a substantial number of jobs and attract shoppers from surrounding counties. The Wegmans store anticipates the creation of 500 to 550 new jobs, and they have already begun hiring for their grand opening in 2018.

Project at 206 Rohrerstown Road.

Lancaster’s Manheim Township has exciting news of its own as it prepares to welcome the grand opening of a Whole Foods market in 2018. The proposed $130 million Belmont housing and retail project includes the market, other retail stores and homes on farmland just south of Route 30.

Rendering of Belmont retail and housing project.

Anchoring the retail portion of the 110,508 square-foot project will be the 40,000-square-foot Whole Foods market. Additional tenants will be Two Farms, Inc. Panera Bread, Metro Diner, Fuddruckers, Citadel Federal Credit Union and Mod Pizza. The retail portion of Belmont will create nearly 1,000 jobs, while Belmont overall will generate millions of dollars in tax revenue for Lancaster.

INDUSTRIAL

Four new industrial real estate projects are also under construction in Central Pennsylvania. Though much larger in size, these spaces will have a slightly different impact on our local jobs and economy than Lancaster’s retails spaces.

The largest is the Class A industrial space located at 100 Goodman Drive in Carlisle. This is part of the Goodman Logistics Center Building 1. It was announced in August 2017 that the tenant for this 1,007,868 square-foot space will be syncreon, a global third-party logistics company headquartered in Michigan. From this prime industrial location, syncreon will have access to more than 40 percent of the population of the United States.

Project at 100 Goodman Drive.

Another Carlisle Class A industrial space soon to enter the market is the warehouse at 100 Carolina Way. This 805,600 square-foot space, currently not pre-leased, is located next to Keen Transport, U-Pack and ABF Freight. The third industrial construction project is the 738,720 square-foot space located at 112 Bordnersville Road in Jonestown (First Logistics Center – Building A). Situated in the heart of the I-78 and I-81 industrial distribution corridor, the industrial park is designed to accommodate two Class A distribution centers. The second space will be delivered in Q3 2018.

Project at 100 Carolina Way.

Project at 112 Bordnersville Road.

The final Class A industrial space which is under construction in Central PA is the Ace Hardware expansion located at 139 Fredericksburg Road, Fredericksburg. With 225,875 square-feet of space, this expansion will turn the building’s existing space into a combined 1.1 million square-feet of distribution space located at Lebanon Valley Distribution Center.

Rendering of the ACE Hardware expansion.

As Central Pennsylvania’s warehousing and distribution industry grows through the delivery of these new buildings, to what extent do you feel this will impact our local jobs and economy?

Also, which of Lancaster’s two new retail spaces do you feel will gain more traffic – short term but also long term?

Join in the conversation by leaving a comment below!

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Impact of the New Tax Law on Commercial Real Estate

Posted on February 12, 2018 by Mike Kushner in Blog, Commercial Real Estate No Comments

The federal tax overhaul, which was enacted into law on December 22, 2017, was the most drastic tax law changes that the United States has seen in 30 years. While it will take some time to fully understand how much tax savings the changes could generate for commercial real estate investors, there are several significant impacts that are quite apparent.

New tax climate favors commercial real estate investors

Legal and tax experts agree that the new tax law bestows several benefits that make it more appealing for commercial real estate investors to buy properties. Many of the changes will put more money back into the pocket of investors in terms of tax savings. Some of the changes, particularly the tax treatment of capital expenditures, will shield a tremendous amount of income for property owners that are making capital investments and improvements to their properties. And let’s not overlook the ripple effect the new tax bill may create, such as fueling economic and job growth that will drive demand for commercial real estate. All things considered, real estate has become just about the most accessible way for high net-worth investors to profit from the tax law.

A shift in capital should increase demand for commercial properties

The tax new law creates an incentive for investors to shift capital from equities to pass-through businesses. Essentially, the law enables a taxpayer to factor 2.5 percent of the original purchase price of a property into the calculation of the 20 percent deduction for pass-through income. This allows a real estate investor the ability to reduce real estate investments to an effective 29.6 percent tax rate, which is 10 points lower than it was in 2017. Without the predicted shift in capital based on the tax new law, commercial real estate prices likely would have stalled in 2018, due to increasing interest rates and decreasing cap rates. It’s important to note that the deduction is set to expire in December 2025.

Expansion of Section 179 allows commercial property owners to direct expense improvements

Another positive for commercial real estate investors is the expansion of the Section 179 deduction for depreciation. Under the Section 179 revision, the new tax law lets commercial property owners count the cost of improvements (i.e. roofs, HVAC systems and security systems) as direct expenses in the year these items were installed. Under the previous tax law, improvements had to be capitalized with a small piece being expensed each year until the full cost was exhausted. Additionally, the Section 179 change is retroactive to the 2017 tax year, which is unlike other parts of the new law.

Tax-free 1031 swaps for real estate were retained

Another piece of the tax law that should have commercial real estate investors excited is the retention of tax-free 1031 swaps for real estate. The real victory here is that lawmakers did not yank 1031-exchanges for real estate, as they did for aircraft and other types of personal property. In fact, under the new law 1031 trades are now restricted exclusively to real estate.

Insights from a tax adviser

The new tax law creates some gray areas and leaves many questions unanswered, particularly as it relates to commercial real estate. As a commercial real estate investor, the best thing you can do is consult a tax adviser before making any drastic changes to your real estate investment strategies. At Omni Realty Group, we had a few questions of our own so we asked Jim Holland, accountant and owner of Jim Holland CPA to weigh in with his insight. Here is what he shared.

“There is no doubt the biggest winner in the real estate arena was for commercial real estate investors; however, it is wise to proceed with caution. I would recommend to any commercial real estate investor that they tread lightly until more is known about calculating the 20% reduction of business income, including from flow through entities. The calculation can be complicated and burdensome.”

That’s not to say there are some immediate actions CRE investors might consider taking in 2018 to put themselves in the best possible position to maximize the benefits of the new tax law. Clifton Guise, Tax Attorney and Partner at Halbruner, Hatch & Guise, LLP shares the following.

“Because most real estate investors own and operate their real estate activities through pass-through entities (LLCs, LPs, and S-Corps) or sole proprietorships, it is important to determine if the investor qualifies for the Qualified Business Income (“QBI”) Deduction. The QBI Deduction is an individual level deduction that can reduce the tax rate on income from pass-through entities. An investor may need to restructure their entity or in some cases restructure their leases in order to qualify for the QBI Deduction.”

Taking the time to fully understand the new tax law, and identifying how you may need to restructure your leases or business model to maximize your benefits under this law is a worthy investment of your time. If you are a commercial real estate investor, make it a goal to seek advice on the new tax law and how it stands to impact your business going forward.

Share your opinion! What do you think is the most important impact the new tax law will have on commercial real estate?

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Real Estate Trends to Impact the United States in 2018

Posted on December 27, 2017 by Mike Kushner in Blog, CPBJ Articles, Trends No Comments

Note: This article was published by the Central Penn Business Journal. Click here to read the original version.

Rapid technological advancements and significant demographic shifts significantly influence the real estate industry. These various factors like growing urbanization, longevity of Baby Boomers and differentiated lifestyle patterns of Millennials are changing the way people value real estate. Add into the mix macroeconomic and regulatory developments, and you have the perfect storm for some significant changes to come to the real estate market in 2018.

With the many changes that have already taken place in 2017, many real estate companies find themselves searching for ways in which they can gain a competitive advantage and drive top- and bottom-line growth in the New Year.

To achieve this, we must identify and monitor emerging trends that are likely to impact the economy moving into 2018. Take a look at the top trends that are shaping the U.S. real estate industry right now!

ECONOMIC OUTLOOK: Increasing interest rates could temper growth

Federal Reserve is likely to raise interest rates in the short-to-medium term. Volatile global markets have led to continued low interest rates, but that’s expected to come to an end in 2018. Higher interest rates are likely to increase mortgage costs and could deter real estate investments to some extent.
Gross domestic product growth will likely increase 2.5 percent in 2018. It’s the same as in 2017, but better than the 2.1% growth in 2016. The modest economic improvement could temper the pace of commercial real estate (CRE) transaction activity.
Improving labor markets and household wealth will boost consumer confidence. The U-5 unemployment rate which includes discouraged workers and all other marginally attached is expected to drop under 5 percent. The employment-to-population ratio is projected to peak in 2018, as retiring Baby Boomers may reduce the share of employed.

REGULATORY OUTLOOK: Greater compliance means greater cost

Increased compliance and administration costs will result from the new accounting standards on lease accounting and revenue recognition that will primarily impact real estate investment trusts (REITs) and engineering and construction (E&C) companies.
Risk retention rules will lower issuance of commercial mortgage-backed securities (CMBS). We are also likely to see a reduction in capital availability in secondary and tertiary markets.
The Protecting Americans from Tax Hikes (PATH) Act of 2015 will ease REIT tax provisions and R&D tax credits for E&C companies, while increasing the flexibility to invest in startups for R&D experimentation. However, corporate tax reforms will reduce flexibility for corporations to spin off real estate assets into REIT structures.

DISRUPTIVE TRENDS: These factors are reshaping the face of CRE

Collaboration and Sharing.These sound like two positive trends, right? They certainly are for startups who utilize new platforms and business models like Airbnb or WeWork to reduce their real estate overhead. However, this type of collaboration and sharing of space is disrupting the way organizations lease and use commercial real estate space for their businesses. Traditional CRE companies will need to rethink their approach toward space design, lease administration, and lease duration in order to compete.
CRE data is becoming more ubiquitous and transparent thanks to technological advancements. The traditional brokerage model is being threatened by the increasing ease and efficiency of online leasing. Traditional brokers will need to diversify their services to include consulting and collaboration.
A growing demand for mixed-use developments as consumers prefer to “live, work and play” in proximity. This demand is the result of a shortage of workers with strong STEM skills, rising urbanization and Millennials’ preference for an open and flexible work culture. Companies trying to compete for this type of talent should choose office locations in areas that cater to the living and working environments preferred by their ideal candidates.
Rising demand for fast and convenient online retailing is disrupting the retail and industrial markets. Innovations in speed and mode of delivery (such as same-day delivery and e-lockers) will decrease the demand for large retail and industrial spaces. This trend will also cause a blurring of the lines between these two properties. For example, some retail space could double as fulfillment centers. To stay afloat, retailers will need to try different store formats to appeal to the consumer, while industrial properties should focus on smaller, more flexible spaces located near cities.
A change in how we get around will also change how we use real estate. With each passing year, more and more people rely upon “pay-per-use” vehicles and rideshare platforms like Zipcar, Uber and Lyft. We also get closer to self-driving vehicles. This major disruption to the entire mobility ecosystem will result in fewer people owning and driving their own vehicles, especially in urban areas. This will free up large parking spaces in prime locations that can be put to different uses. Real estate companies should begin to explore ways to reduce and repurpose parking space as a means to generate more income.

Over the course of the next 12 months, the U.S. commercial and residential real estate industry can expect to be hit with various changes and challenges. Some of these changes may have a favorable impact, while others could impose some serious setbacks. For real estate businesses to gain a competitive advantage and drive top- and bottom-line growth in 2018, they should take note of these emerging trends and work on developing a strategy now to react to the changing market, when the time comes.

What real estate trend do you think will have the most significant impact on the United States in 2018? Share your insights by leaving a comment below!

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