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Posts tagged "decline"

Home» Posts tagged "decline"

What does the major shift to virtual offices mean for commercial real estate?

Posted on April 28, 2020 by Mike Kushner in Blog, Commercial Real Estate, Trends No Comments

What does the major shift to virtual offices mean for commercial real estate?

All across our nation, businesses that once functioned from physical office space had to quickly transform their processes to function remotely as the government mandated stay-at-home orders to prevent the spread of the Coronavirus. This proved to be a strenuous and uncomfortable transition for most businesses, regardless of size or structure. Businesses with just a handful of employees, all the way up to organizations and institutions with thousands of employees scrambled to piece together the technologies and protocol that would allow them to remain functional, even when separated physically.

The typical boardroom meetings turned into Zoom calls, workshops and trainings that were to be conducted in-person, needed to mold into virtual delivery, and much more. As is to be expected, there was a steep learning curve and many technological challenges to overcome.

Now that Pennsylvania is more than a month into its statewide stay-at-home orders, many businesses have found new normal of working virtually. This is encouraging for those businesses who have managed to survive, and even thrive amidst such volatile times for our economy. However, it presents an uncertainty as to how businesses will choose to resume their traditional work environment, when they have permission to do so.

The Impact on Commercial Office Space – Nationally

Before COVID-19, around 43% of workers “occasionally” worked from home [versus 39% in 2012], 62% of workers said they could work remotely, and 80% of workers wanted to work from home at least “some of the time.” Working (remotely) through this pandemic will likely increase those percentages, spelling rough waters ahead for office landlords. Now during the stay-at-home and work-from-home orders, employers are seeing how they can operate with some or all their employees working remotely, and even do so as or more efficiently than when working from their traditional work environment.

As a result, it’s likely many employers will closely consider how they might leverage the cost-savings associated with reducing or completely eliminating the overhead of physical office space, which will result in increased office space vacancies, shorter leases, reduction of space needs from renewing tenants and less money available for tenant improvements. Vacancies will rise dramatically before they slowly decline. With approximately 8.1 billion square feet of office space nationally, the expected addition of another 335 million square feet through 2024 is very much in doubt.

The Impact on Commercial Office Space – Locally

Being the home of Pennsylvania’s capital will provide the Central PA region with some shelter, but there is little chance this market does not cool in the very near future. Employment gains have underperformed the national average for the duration of this cycle, and demographic trends are unfavorable. Residents are older, population growth is slow, and the state’s fiscal situation is, quite frankly, a mess.

Harrisburg is an underdeveloped capital compared to Columbus, Albany, and Annapolis; and the cultural epicenter of central Pennsylvania is in Lancaster. Harrisburg is trying to evolve into a knowledge-based economy and has adopted business-friendly incentives that have helped create nearly two dozen tech startups, which have generated 1,000 jobs. But the backbone of the economy still lies with Hershey and Rite Aid, which have headquarters in the region.

Fortunately, Central PA also has a strong education and medical economy that is reflective of statewide employment. Education and health services jobs, which now track evenly with government jobs in the state’s capital, grew by more than 4% annually. Expanding employment opportunities have increased demand for office space, and employment in office-using industries is well above pre-recession figures; but this remains, and likely will remain, a slow-growth market. Additionally, Pennsylvania as a whole will likely face significant financial problems after the virus subsides.

Vacancies currently sit at close to 6.6%, representing a year over year change of 0.0%, but are almost certain to spike in the very near future. While 12 month absorption figures (9,300 square-feet) can be negative, vacancies remain under control thanks to limited levels of new supply. The limited demand, and high number of small businesses operating here, could hamper the city for years if the quarantine carries on for months, as the federal government is estimating it will.

A New Work-From-Home Paradigm

When it comes to navigating the new work-from-home paradigm, we can expect “work-from-home” policies to be established to assure proper decorum, productivity standards, communication, and online protocols. Also watch for the adoption of four-day work weeks, shorter workdays, and greater reliance on technology for current employees. Extensions of sick leave “banking” and “healthy-to-come-to-work” standards are likely to become commonplace.

From the tech side of things, the use of platforms like Zoom, Go To Meeting and Blue Jeans video conferencing technology will become more popular alternatives than traditional in-person meetings. There will also be an increased expectation that these meetings will be as, or more productive than in-person meetings. Board management software and other secure online document management such as DocuSign, DropBox, and shared drives could electronically account for 70% – 75% of all “approval” transactions, for businesses who require such. Robust CRM (customer relationship management) platforms will be used increasingly to interact with customers and clients. Additionally, automation and outsourcing could replace 20% – 30% of employees who perform clerical, accounting, and administrative functions.

A Looming Recession

No matter how you look at things, the bottom line is that this pandemic will push the U.S. into a recession. There’s simply no way around it, at least immediately. Overall GDP growth in 2020 is expected to decline 10% – 13% which is the deepest recession on record. Some expect unemployment could rise to 10% – 15%, or higher, assuming a COVID-19 peak occurs by the 3Q.

The Central PA region has been significantly impacted by the Coronavirus. As of first quarter, the country closed up businesses and the federal government is estimating it will take months before there is a return to normalcy. There is no telling how long the shut out will occur, or what impact it could have on the Central PA office market, though it will likely be immense. Unemployment numbers are beginning to spike, and in the coming weeks, it is likely that hundreds of more businesses could fail, even with the Governor’s promise of reopening the Commonwealth on May 8. Additionally, rents will likely decline as vacancies skyrocket, and construction and investment activity will likely remain extraordinarily limited through the remainder of 2020.

The fundamentals of how Americans live, work, shop and play have changed and will not return to historical norms of behavior, consumption and lifestyles. The year 2020 will be analogous to the impacts of and transformative changes resulting from the Great Depression [1929 – 1932], which took more than 10 years to recover.

Where do we go from here?

Commercial real estate must look at this as an opportunity, just like every industry, to pause and pivot. The market prior to COVID-19 will not be the same market to which we will return. But we will return to something and we must learn to navigate this new landscape by remaining flexible, thoughtful, and strategic. Historically, Central PA has been able to withstand some of the most tumultuous economic storms on the past. Yes, gains are about to take a hard hit as the Coronavirus tears through the commercial real estate world, but this only means we need to bear down an be open to opportunities wherever they may arise.

One of the hardest hit areas of commercial real estate will be new construction. With little supply underway at second quarter, and the Coronavirus halting construction across the world, there is very little chance this market sees any notable projects deliver this year. Most projects since 2015 have either been build-to-suit efforts or significantly pre-leased prior to ground break.

With most new construction on hold, there could be the opportunity for existing office renovations. Many businesses may be looking to reconfigure their space to better isolate employees, adhere to whatever new social distancing protocols come from this, or install sanitary features like air purifying systems. Commercial real estate construction companies and developers would be wise to shift their focus to this type of work.

Another hard hit sector will be companies that provide shared and collaborative office space, like WeWork. In fact, society as a whole is likely to question the open office, collaborative work space, and creative office floor plans. Many businesses and sole proprietors chose to cancel their memberships to such services during the pandemic and it will be exceptionally challenging to regain all that was lost once the stay-at-home orders are lifted. For those who have found that they can effectively work from their own home office spaces, they may continue to do so in an effort to lighten overhead costs. Others may have been hit so hard by the pandemic that there is not a business to which they can return, further reducing their need for office space.

Again, the opportunity here is to reconfigure both the physical shared office spaces to be better isolated and sanitary, but also rethink the business model of how companies charge for space. Being flexible and fluid for business owners as they navigate the new normal is key right now.

To close on a positive not, the one clear winner in the office sector will be healthcare, medical office buildings, and biotech facilities. This sector is expected to grow 10% – 16% annually over the next decade as the entire local, county, state, and national healthcare facilities infrastructure and platform are reshaped, integrated and expanded as society mends and strengths as a result of a pandemic like the world has never seen.

If you are a commercial real estate professional, how have you been impacted thus far by COVID-19. Or if you are a business owner or employee who has transitioned to a virtual work environment, how do you anticipate this experience to transition your “new normal” once the stay-at-home order is lifted?

Join in the conversation by leaving a comment below.

[Online Resources] Real Estate, business, camp hill, changes, Commercial Real Estate, coronavirus, COVID, COVID-19, CRE, decline, economic impact, Economy, employees, gettysburg, harrisburg, hershey, impact, industrial, lancaster, lease, mechanicsburg, Mike Kushner, negotiation, office, office market, office real estate, Office Space, offices, Omni Realty Group, pennsylvania, property, recession, retail, stay at home, technology, terms, trends, unemployment, virtual, virtual work environment, work from home, york

Census Data: National and Local Trends You Need to Watch

Posted on June 3, 2019 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.


Census data provides a fascinating look into population growth trends that stand to have a profound impact on our economy, both locally and nationally. More than just being “interesting” data to study, population growth and decline points us to important trends that will reshape supply and demand in various industries, one of the most prominent being real estate.

Just last month, the US Census Bureau released new population estimates. These estimates account for and compare the resident population for counties between the dates of April 1, 2010 to July 1, 2018. The outcome? There are shifts in population taking place across the nation that may differ from what you might assume. Let’s take a look at some of the highlights from this data from a national and local level.

At a National Level

South and West Lead Population Growth

The census data confirmed that counties with the largest numeric growth are located in the south and the west regions. In fact, Texas claimed four out of the top 10 spots. Looking at population growth by metropolitan area, Dallas-Fort Worth-Arlington, Texas, had the largest numeric growth with a gain of 131,767 people, or 1.8 percent taking place in 2018. Second was Phoenix-Mesa-Scottsdale, Arizona which had an increase of 96,268 people, or 2.0 percent. The cause of growth in these areas is the result of migration, both domestic and international, as well as natural increase. In Dallas, it was natural increase which served as the largest source of population growth, whereas in Phoenix I was migration.

Fastest Growth Occurred Outside of Metropolitan Areas

Surprisingly, no new metro areas moved into the top 10 largest areas. Of the 390 metro areas within the US (including the District of Columbia and Puerto Rico), 102 of these areas, or 26.2 percent experienced population decline in 2018. The five fastest-decreasing metro areas (excluding PR) were Charleston, West Virginia (-1.6 percent); Pine Bluff, Arkansas. (-1.5 percent); Farmington, New Mexico (-1.5 percent); Danville, Illinois (-1.2 percent); and Watertown-Fort Drum, New York (-1.2 percent). The population decreases were primarily due to negative net domestic migration.

North Dakota Claims Fastest Growing County

Among counties with a population of 20,000 or more, Williams County, North Dakota claimed the top spot as the fastest-growing county by percentage. This county increased by 5.9 percent between 2017 and 2018 (from 33,395 to 35,350 people). The rapid growth Williams County experienced was due mainly to net domestic migration, 1,471 people, in 2018. The county also experienced growth between 2017 and 2018 by both natural increase of 427 people, and international migration of 52 people.

More Growth than Decline

Out of 3,142 counties, 1,739 (or 55.3 percent) gained population between 2017 and 2018. Twelve counties (0.4 percent) experienced no change in population, and the remaining 1,391 (or 44.3 percent) lost population. Between 2010 and 2018, a total of 1,481 (or 47.1 percent) counties gained population and 1,661 (or 52.9 percent) lost population. Though there has been more growth than decline overall, the numbers indicate that this can easily shift year over year.

At a Local Level

Dauphin County

 Lancaster County

York County

Cumberland County

Cumberland, Dauphin, Lancaster and York Experience Consistent Growth

The most notable trend to take place between 2010 and 2018 in Central PA is that these counties all experienced consistent growth year-over-year. Moreover the growth occurred fairly evenly over the last 8 years. This provides consistency and enables the economy to respond to the growth over a reasonable amount of time.

Counties Also Maintain Same Order of Ranking in Population

Another trend worth noting is that the counties have maintained the same order of ranking based upon population for 8+ years. For example, in 2010 these counties in order of smallest population to largest population was Cumberland, Dauphin, York, Lancaster. This is the same ranking we see in 2018, and every year in between. No county surpassed another at any point.

Lancaster Remains Largest and Fastest Growing County

Lancaster County has a major lead in population over the others. At 984 square miles, it is also the largest of the 4 counties. Between 2010 and 2018 it also experienced the largest numeric growth at 24,112 people. Number two in numeric growth was actually the smallest of the four counties, Cumberland County, which grew by 16,017 people. York County grew by 13,301 people and Dauphin County grew by 8,997 people.

Overall, the latest US Census offers valuable and insightful information related to population growth between 2010 and 2018. Understanding the cause of either growth or decline provides framework for how these shifts may continue on their course, or change in the future.

A deeper dive into the census data reveals several demographic changes impacting commercial real estate development: household formations, aging baby boomers, growing millennials, women in the workforce, and migration toward the South.

Today’s demographic changes present challenges for commercial real estate developers, but they also offer lucrative opportunities to firms creatively adapting to new demands.

[Online Resources] Real Estate, 2018, america, analysis, blog, blogger, camp hill, carlisle, census, census bureau, central pa, central penn business journal, change, Commercial Real Estate, cumberland, data, dauphin, decline, facts, growth, harrisburg, hershey, homes, hummelstown, increase, information, lancaster, lemoyne, local, local market, migration, Mike Kushner, nation, national, pennsylvania, population, real estate agent, real estate broker, residential, statistics, trends, united states, york

Jobs – Not Economy – Drive Commercial Real Estate Activity

Posted on August 22, 2018 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.


Earlier this month, it was reported that the number of Americans filing for unemployment benefits rose less than expected. To put this into perspective, claims dropped to 208,000 during the week of July 14, which was the lowest it has been since December 1969! After peaking at nearly 300,000 claims in October of 2017, we have seen a mostly steady (with some variation) decline in unemployment claims moving forward.

Dropping unemployment numbers indicate a strong labor market. The United States has an estimated 149 million jobs – 19 million more than it did just nine years ago. When you think about that type of job growth, it’s easy to see how it will have an impact on commercial real estate. To accommodate 19 million more workers, businesses have had to add space. Even for jobs that are run outside of traditional office space, there are still many more that do utilize office, retail or industrial real estate to some capacity.

Source: Bureau of Labor Statistics

Many people may assume that it’s the economy that drives commercial real estate activity, but really it’s jobs. The two are closely correlated, but for several compelling reasons jobs have the greater impact and drive businesses to either expand or contract their commercial space.

It all comes down to people and space.

Economic growth is measured by GDP and can be fueled by any number of factors, most of which won’t have a direct impact on commercial real estate. Businesses can earn more money without necessarily needing to hire more people or move into a different commercial location. Though it’s common that when the economy is growing, the commercial real estate industry becomes more active, the true driving force is jobs.

When businesses need more people, they also need more space to accommodate these people. A business using traditional office space is not likely able to hire more than three or so people before working quarters begin to feel a bit crammed. As a result, they move. It is increasing jobs, not just economy, that spurs new commercial real estate activity.

Change doesn’t happen overnight.

There is somewhat of a long tail on job growth driving commercial real estate activity. It takes time to catch up! When businesses are adding employees, they will usually make their current space “work” for as long as possible and then strategically move into a bigger space when they absolutely must. Conversely, when businesses are forced to lay off employees, they often stay in their current space, even if it means some space goes unused. The reason is it’s easier (and less expensive) to lay off employees as the first means of cutting costs than it is to downsize commercial space.

So, the job growth that we’ve seen over the course of many years is now driving the commercial real estate activity we are seeing today.

Slowing, but not stopping.

Job growth peaked in early 2015, then fell steadily through the end of 2017. Since then we have seen a modest, yet mostly steady increase in recent months. The reality is job growth, at any rate, cannot go on forever. The reason is, at some point, the United States will reach its “full employment” where everyone who wants a job, has a job. The unemployment rate, now at 4%, is about as low as it has been since the late 1960s, almost 50 years ago.

For commercial real estate, the link between job growth and space demand is clear and direct, though there may be lags. There will always be businesses who are looking to change their commercial space. Some will want more space, some will want less. Others will want to move to a newer space or will desire a different location. Businesses will close while others open. And so the cycle continues.

Short-Term Impact

Even with economic growth heating up, commercial real estate investors and property owners should not set their expectations for greater space absorption too high, at least in the short-term. Yes, there will be some pick-up in leasing associated with the spike in GDP growth. However, CRE professionals would be wise to focus more on job growth as the gauge for leasing prospects – and this outlook looks much more moderate because the ranks of unemployed workers available is largely exhausted. Looking at the short-term, we should not anticipate significant growth in property leasing this year. The surging industrial sector is the exception, which is the result of the shift from in-store to online shopping, not jobs.

Do you agree that it’s jobs, not the economy, that has the greater impact on commercial real estate activity? Why or why not? Join in the conversation by leaving a comment below.

[Online Resources] Real Estate, advice, blog, central penn business journal, Commercial Real Estate, cpbj, decline, Economy, effect, employment, expert, growth, impact, jason scott, job, jobs, labor, long-term, Mike Kushner, Omni Realty, opinion, rate, short-term, statistics, trends, unemployment

Central Pennsylvania Industrial Market Ends 2013 with Lowest Vacancy Rate All Year

Posted on February 26, 2014 by mike.kushner in Blog, Commercial Real Estate, Local Market, Trends No Comments

Vacancy rates for the total industrial market in Central Pennsylvania are the lowest they have been since third quarter 2012 at 7.7 percent. This is a 0.6 percent drop from last quarter’s vacancy rate of 8.3 percent. The Central Pennsylvania flex market finished the year with a 9.7 percent vacancy rate and the warehouse market at 7.6 percent.

Industrial Vacant Space

This decline in vacancy rates reflects a combination of expected continued economic growth and positive fundamentals driving the U.S. industrial sector. Lower gas and electric costs in the U.S. compared to developing economies is leading to manufacturing being “on-shored.” Also, an uptick in e-commerce is increasing the amount of goods stored in warehouses as opposed to bricks-and-mortar retail stores.

As a result, these declining vacancy rates have stirred up a lot of real estate action in the fourth quarter. Currently, 424,000 square feet of industrial property are under construction. YTD Net Absorption for Central Pennsylvania is 1,852,412 square feet with YTD Deliveries at 720,000 square feet.

Deliveries and Absorption

First Logistics Center @ I-83 was listed number one of the top eight YTD Deliveries in the Philadelphia Industrial Market. This site is a 708,000 square-foot state-of-the art distribution/warehouse facility located in York, Pennsylvania that delivered in fourth quarter 2013.

This quarter’s list of Top Under Construction Properties included a site at 600 Independence Avenue, Mechanicsburg, PA. This project is set to be completed in second quarter 2014 and will have an RBA of 24,000 square feet.

Just down the road, at 500 Independence Avenue, is the location of one of this quarter’s Select Top Sales. This 342,498 square foot industrial space sold to Duke Realty Corporation for $22,567,200 in August of 2013. But the largest sale to take place in the Central Pennsylvania market was Ollie’s Bargain Outlet Distribution in York which sold for $31,671,000 in March 2013.

In total, 4 of the 9 Select Top Sales between October 2012 and December 2013 took place in the Harrisburg submarket, specifically York and Mechanicsburg, totaling $101,246,771 in property. Additionally, 7 of the top 10 Industrial Leases, based on leased square footage for deals signed in 2013, also took place in the Harrisburg East or Harrisburg West submarkets.

After having reached their lowest rate since 2011 during second quarter 2013, Quoted Rental Rates continue to rise slightly to $3.89 per square foot per year.

Quoted rental rates

Fourth quarter 2013 closed on an active real estate market for the industrial sector with decreasing vacancy rates and increasing construction. One possible catalyst for this trend is the devastating Japanese tsunami and Thai floods that highlighted the dangers of thinly stretched supply chains. Entire plants had to be shut down because of inadequate inventory. As a result, companies are moving away from the “just in time” supply chain management, where companies keep only enough inventory on hand to meet immediate needs and are instead actively expanding their industrial and warehouse spaces.

The information in this report is based on CoStar’s Fourth Quarter 2013 Market Report.

Central PA Real Estate, commercial lease, Commercial Real Estate, Commercial Realtor, CRE, decline, Harrisburg east market breakdown, industrial, Mike Kushner, office lease, Office Space, office space camp hill, office space Harrisburg, office space in central pa, Omni Realty Group, rent office space, vacancy rates

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