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Posts tagged "economic"

Home» Posts tagged "economic"

Economic Impact of Rising Commercial Construction Costs

Posted on July 14, 2021 by Mike Kushner in Blog, Commercial Real Estate, Local Market, Trends No Comments

When a global pandemic first hit, the main concern was rightfully on the health and wellbeing of our population. As we slowly gained knowledge and tools to bring the spread of this virus under control, something equally as powerful and disruptive was already burning through the economy like wildfire.

Ongoing pandemic-related disruptions in the supply chain of a range of construction materials are undermining project demand and this has trickled down to impact just about every industry imaginable. Most directly, the delays and cost increases fall on construction businesses, their workers, and their clients who are waiting on them to complete projects varying from a single-family home to mega complexes that have been in the works for years.

These mass shortages caused by the inability to ship or receive some of our economy’s most essential materials, such as lumber and steel, have the construction industry in between a rock and a hard place. And we can be sure that they will not be the only sector to feel the blow of delayed project timelines and skyrocketing costs. How does all of this stand to impact the progress and financial health of our economy? Keep reading for key insights.

Understanding the Impact

According to construction project estimators, one of the biggest reasons for material shortages is the inability to ship available materials by rail or truck. Due to container and trucking shortages being felt across the country, anything with significant shipping and logistics components is highly likely to cause lead time issues. If the easing of tariffs is put into place, pricing and availability should begin to return to normal levels, which would have a positive impact on current projects and the market as a whole. However, with the shipping container and freight backlog that currently exists, bringing in significant quantities of overseas material only adds to the current challenge.

GRAPH COURTESY OF AGC OF AMERICA

Shortages Drive Cost

While general contractors can usually protect against the expectation that costs will increase, the construction industry has not experienced such dramatic material cost increases in recent history. Material cost increases, coupled with the already existing labor and housing shortages, will continue to impact the industry, domestically and globally, for the foreseeable future. Such shortages could delay the start of new projects around the country and may trigger additional claims on projects that are currently underway.

These increases and challenges are cause for concern; it’s important for business owners to consider the types of materials that their project will require. While commercial construction material costs have risen as well, it is not to the extent that residential construction costs rose due to its heavy reliance on softwood lumber. For commercial construction, steel prices generally have a greater impact.

Delays Across the Board

Some material suppliers have completely canceled their bids or contracts due to the lack of materials. While others have indicated delays of six months or more and are currently quoting prices for materials (like engineered wood products) that will not ship until early 2022! Because of these setbacks, the industry can expect an increase in claims and disputes over material prices and associated delays.

Getting Creative with Contracts

Project participants might consider amending their contracts, incorporating new or modified cost-escalation provisions, or adding riders for adjustments to contract terms based on certain material cost increases, such as based on express percentage increases. Parties might also negotiate contract allowances for certain materials or incorporate cost-sharing for material price increases that exceed certain thresholds.

Push On or Wait?

Borrowing is very inexpensive right now, and even a slight increase in lending rates down the road could add hundreds of thousands of dollars in overall costs, depending on the length of the loan agreement. Project owners need to weigh the risks of waiting for material prices to come down against the probability of rising inflation and interest rates. Likewise, if waiting means you can’t expand your production capacity, grow your business, or address the needs of those you serve because of your facility’s limitations, the long-term implications could negate and even overshadow any potential savings.

What’s most important to keep in mind is that the market has demonstrated again and again that everything flows. Trends (and troubles) will come and go, and when the market experiences a negative impact caused by something else, it will look to correct itself almost immediately. To address the delay of construction materials and labor, and the rise in construction costs, as a result, we can see solutions already emerging. These range from using alternate materials, negotiating more flexible terms within a contract, phasing out projects, and getting creative with how and when to borrow money to take advantage of low-interest rates.

The commercial construction industry will rebound, if not even stronger than it was before the pandemic hit. The lesson here is to remain patient, seek innovative and collaborative solutions, and keep your eyes set on the long-term evening-out of any negative impact you may be experiencing today.

[Online Resources] Real Estate, agent, blog, broker, buyers agent, central pa, Commercial Real Estate, Construction, construction industry, CRE, data, economic, Economy, finances, harrisburg, impact, industrial, local, Mike Kushner, money, national, new build, office, omni real estate, Omni Realty Group, regional pennsylvania, retail, space, tenant represenative, trends, united states

Cumberland County Focuses on Commercial Real Estate Redevelopment Projects to Sustain Growth

Posted on April 4, 2017 by Mike Kushner in Blog, Commercial Real Estate, Community, Local Market No Comments

Cumberland County Focuses on Commercial Real Estate Redevelopment Projects to Sustain Growth

Cumberland County continues to be the fastest growing county in Pennsylvania. For the most part, this is a great thing for the County and the businesses and residents who reside in its borders. However, the impact of this growth brings with it the concern that there may not be enough available land or workers to sustain it long-term.

In August 2016, Cumberland County decided to create a new affiliate to the Cumberland Area Economic Development Corp (CAEDC). The Real Estate Collaborative LLC (known as the REC) is made up of a five-member board and focuses on buying, redeveloping and selling older industrial, commercial and public building sites. By seeking out smaller redevelopment projects, the goal is to fill in gaps and rehabilitate underused, vacant and brownfield sites that private developers shy away from due to heavy upfront remediation costs.

It’s a smart concept and one that is already gaining traction. We spoke with Jonathan Bowser, CEO of the Cumberland Area Economic Development Corp., to learn more about the REC’s progress in just a little more than seven months. Here’s what’s going on!

Omni Realty: What are some of the projects the REC is taking on right now?

Jonathan Bowser: Since formation of the REC, we have purchase options on three key sites for redevelopment throughout Cumberland County. The first location is the Domestic Castings site in Shippensburg, an old casting industrial facility that has been around since the 1800’s. As a result, there is suspected environmental contamination and REC was successful in obtaining a state grant to assess any environmental concerns. The preliminary conceptual plan is a mixed use site of residential and commercial space.

The second site is a United Methodist Church in Carlisle. This is a 60,000 SF facility that is presently home to three United Methodist Churches that have merged into one and need more space to accommodate their growth. At this point, we are unsure of how to best repurpose the space and our currently completing a feasibility analysis. The site offers many possibilities! It’s situated in downtown Carlisle, close to Dickinson College and Penn State Dickinson Law School.

The third site is the former Lemoyne Middle School on Market Street in Lemoyne Borough. The school dates back to the early 1900’s and has been closed for almost four years. At this point, it is too early to discuss our development plans, but the REC will conduct a feasibility study to flush all concepts out. In all three projects, these are old buildings, with many barriers that make it conceptually difficult for a private developer to undertake without public resources and support.

OR: Have you been successful in accessing additional local, state, and/or federal funding to further leverage these projects?

JB: Yes, up to this point, we have been successful in obtaining Industrial Sites Reuse Program (ISRP) to assess the environmental concerns at the Shippensburg site. This program is a grant of 75% state funds and 25% local match for all assessment work. Also, we have identified other economic development programs for each site that we plan to make applications for in the near future. Some of those programs include Redevelopment Assistance Capital Program (RACP), Multi-Modal Transportation Fund (MTF), Business in Our Sites (BOS), New Market Tax Credits (NMTC), and Historic Tax Credits. There are a lot of opportunities available, and we plan to take advantage of as many that make sense

OR: Do you find that you are competing with private developers and how has the consideration of private developers, if at all, impacted the projects you pursue?

JB: The objective of the REC is to not compete with private developers. Our focus is on difficult sites that private developers typically do not want to take on due to the project not being financially viable as a result of extraordinary development costs. This could be the demolition of a large structure, repurpose of a challenging structure, or a site with environmental contamination. These types of challenges add significant costs to any project and often go vacant for a significant period of time before being redeveloped. In addition, we look to collaborate with private developers on these sites, so the REC is not the sole investor/developer of the site.

OR: What assets would you say we don’t currently have in the local area that you’d like see come to Cumberland County as a result of REC’s efforts?

JB: Cumberland County, and our region as a whole, is very diverse in amenities, business types, and assets. For the REC, the focus is on creating sustainable jobs and increasing capital investment and the tax base through these projects. There seems to be a real move towards mixed use projects. As we continue to see retail change and big box stores downsize, the void is being picked up by smaller retailers and small business owners. In addition, millennials also want mixed use housing options that provide convenience and less reliability on cars for modes of transportation. As a result, most of our initial projects are looking at repurposing existing historic sites into mixed uses of residential and commercial tenants.

OR: Can you summarize the long-term vision CAED/REC has for Cumberland County?

JB: On a percentage basis, Cumberland County is the fastest growing county in the Commonwealth of Pennsylvania. This continued growth becomes a balance between growth and quality of life of the county’s residents. As an agency, we continue to support “greenfield” development (building new industrial facilities in vacant lots or farmland), but we also want to focus on redevelopment and repurpose of existing infrastructure in developed communities that are landlocked from future growth.

This means, collectively we have to collaborate, be creative, and have an open mind to the future development of our communities. Every community is fighting for quality jobs and people to reside in their neighborhoods. Our job at CAEDC and REC is to ensure we are doing our part to move the County forward and that existing residents, or prospective residents and visitors, have employment opportunities, recreational opportunities, access to quality healthcare, and a high overall quality of life.

Which one of the REC’s current projects would you be most excited to see redeveloped? Or is there another location in Cumberland County that you thin would make a good prospect? Share in the conversation by leaving a comment!

[Online Resources] Real Estate, brownfield, CAEDC, central pa, CRE, cumberland area exconomic development Corp, cumberland county, economic, Economy, greenfield, growth, industrial, jonathan bowser, Mike Kushner, mixed use, office, onmi realty group, pennsylvania, redevelopment, retail, space

Back in Black: Central PA Retail Market Increases Net Absorption, Rental Rates in Q2

Posted on September 23, 2015 by Mike Kushner in Blog, Local Market, Trends No Comments

It is a good time to be building or renting retail space in Central Pennsylvania!

Second quarter 2015 closed out with the highest quoted rental rate we have seen since at least 2011. Retail businesses are willing to pay the $11.75 per square foot – and more – to move into highly sought after space in Harrisburg, Lancaster, York and the surrounding areas.

Combine this with the fact that the market absorbed a combined 144,318 square feet of space, bringing us back into the black with net absorption, and you can see why we’re hopeful that this is the start of a healthy and prosperous trend in Central PA real estate.

Let’s take a deeper dive into what the numbers are telling us about second quarter 2015 and what we can expect for the future of retail real estate in the Central Pennsylvania submarket.

Select Top Retail Leases

Properties all across the Philadelphia retail market continue to change hands as businesses exit and enter leases. Looking specifically at the Central Pennsylvania submarket, there are several retail leases that occurred in second quarter 2015 that are worth noting.

Blue Mountain Thrift Store now occupies the space at 2 N. Londonderry Square in Harrisburg Area East. In Harrisburg Area West, Peebles moved into the Shippensburg Shopping Center. And finally York County welcomed CSL Plasma into its Eastern Boulevard Plaza.

Select Year-to-Date Deliveries:

Three of the top 10 year-to-date deliveries in the Philadelphia retail market occurred in the Central Pennsylvania submarket. The Messina Highlands project in Shrewsbury was completed this quarter with an RBA of 30,000 square feet and a quoted rental rate of $26.06. A ton of popular shops including AT&T and Panera Bread will occupy this space. Currently, 32% of the space is still available for rent.

Another retail property located at 2108 S. Queen Street, York was delivered this quarter with an RBA of 16,000 square feet and is 100% occupied. Finally, the construction project at 750 Lititz Pike, Lititz was also completed in Q2. This property has an RBA of 10,820 square feet and its quoted rental rate is $17.

Select Top Sales:

Among the top select sales in Q2, the Central Pennsylvania submarket had two of the top nine on the list. The Shoppes at Susquehanna Marketplace in Harrisburg came in at number three. Clarion Partners purchased this from Stanberry Development, LLC for $44,000,000. In Lancaster, the Manor Shopping Center was sold by the Real Estate Equity Company, LLC to Wharton Realty Group for $34,990,000.

Vacancy:

This quarter, the vacancy rate dipped ever so slightly from 5.6% to 5.5%. These numbers have remained fairly stable ever since first quarter 2014 which is the last time we saw it at 6.0% or higher. The vacant square feet also reflected this small change in vacancy rate, decreasing by 93,642 square feet.

Rental Rates:

Looking at the quoted rental rates, Q2 experienced a $0.20 raise from $11.55 to $11.75. This is the highest rental rate we have seen in the Central Pennsylvania retail submarket since third quarter 2011.
vacant space and quoted rental rate
Absorption and Demand:

Last quarter, the net absorption dropped into the red at negative 160,861 square feet. In second quarter 2015, we are back in the black with 144,318 square feet. This significant change was certainly a reflection of the 3 new buildings that were delivered this quarter.

Deliveries Absorption and Vacancy

Our Summary/Analysis:

The Central Pennsylvania submarket experienced some exciting changes in second quarter 2015 that indicate a healthy and growing retail industry. Returning to a positive net absorption and increasing quoted rental rates to the highest they have been in more than four years demonstrates the demand for retail space in the local area. Additionally, three new buildings delivered to the market, with two more under-construction, are signs that Central Pennsylvania retail businesses are demanding more space to grow!

The retail industry is a strong indicator of economic health. At the local level, there is a lot we can take from this quarter’s numbers and apply them toward predicting the growth and changes in our overall economy. Retail businesses are investing in this area, moving and expanding into new spaces that are driving up net absorption and the quoted rental rate. We should enjoy this growth and excitement, as it is sure to catch the attention of other retail businesses who may also consider making Central Pennsylvania “home” for some of their stores.

How will the growth of the local retail real estate market impact you or your business? Share your personal insights – or ask a question by commenting below!

[Online Resources] Real Estate, advice, blog, camp hill, central pennsylania, commercial, costar, cumberland, data, dauphin, economic, Economy, expert, finance, harrisburg, health, hershey, lancaster, market, mechanicsburg, Mike Kushner, news, Omni Realty, opinion, pa, pennsylvania, report, retail, space, statistics, trends, writing, york

Central Pennsylvania Retail Market Sees Burst of Growth in Second Quarter 2014

Posted on August 12, 2014 by mike.kushner in Blog, Commercial Real Estate, Local Market, Trends No Comments

The Central Pennsylvania Retail Real Estate Submarket, which includes Adams, York, Lancaster, Perry, Dauphin and Cumberland Counties, experienced a surge of growth in second quarter 2014. Where did this growth occur? What was the cause? And what does this mean for the local economy? Let’s first take a closer look at what the numbers are telling us.

Second quarter 2014 experienced the most square-footage absorbed in one quarter since first quarter 2011.  Total net absorption for this quarter was 298,553 square feet. This was a 237,473 square foot increase from first quarter 2014 which had a net absorption of just 61,080 square feet. After taking a major hit in second quarter 2012, net absorption has been slowly (and unsteadily) recovering; however, this is the highest spike it has seen in more than three years.

Deliveries, Absorption, Vacancy

Vacancy rates dropped to 5.9 percent in the second quarter, falling from the previous quarter’s 6.2 percent. This is the lowest vacancy rate Central Pennsylvania has seen since before third quarter 2010. In correlation to the decrease in vacancy rates, rental rates increased by $0.27. At $11.47 per square foot, this is the highest rental rates we have seen since second quarter 2012.

vacant spacequoted rental rates

Additionally, second quarter 2014 brought Central Pennsylvania some of its top retail leases as existing businesses changed locations and new businesses entered the area. Some highlights include White Oak Furniture’s 38,869 square-foot lease in North Londonderry Square, Palmyra. Get Air signed a 24,300 square-foot lease in Union Square, Harrisburg. A new Aldi location in Mill Creek Square, Lancaster took 17,594 square feet of retail space off the market in second quarter 2014. Finally, Sky Zone moved into a 24,045 square foot space in Gateway Square, Hampden Township. Combined, this is a total of 104,808 square feet of retail rental space absorbed by just four locations in a single quarter.

The Central Pennsylvania retail real estate market finished second quarter 2014 with encouraging indicators of growth. New and expanding businesses are requiring more space, pushing rental rates higher and vacancy rates lower than they have been in years. This growth is also sure to have a positive impact on the local economy as these businesses create more jobs and bring new revenue streams to the area.

No real estate class is more closely tied to economic recovery than the retail sector. While facing other obstacles such as the loss of major shopping center tenants, migration of retail users to pad sites, lack of new-format retailers and competing internet sales, the next six months will see continued recovery of gross retail sales as consumers increase household debt and feel more financially secure with restructured housing payments and more retirement equity. Continued housing market stability remains the key metric in the fate of local retail growth.

Have you experienced any benefits or drawbacks related to the burst of growth in the Central Pennsylvania retail real estate market? Share your insights by commenting below.

[Online Resources] Real Estate, analysis, cental pa, commercial, costar, economic, Economy, growth, market report, Mike Kushner, news, Omni Realty, pa, pennsylvania, retail, trends

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