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Central PA’s Top Commercial Real Estate Leases in 2020

Posted on February 22, 2021 by Mike Kushner in Blog, Commercial Real Estate, Industrial, Local Market, Office Leasing, Trends No Comments

In spite of 2020’s black swan event (COVID-19), leasing activity in Central Pennsylvania continued with mixed results. Normally insulated from strong economic downturns, the coronavirus tested the Central Pennsylvania Region and there are reasons for both concern and optimism.

On the negative side: massive job losses in retail and a significant manufacturing base could cause serious disruption. Roughly 30,000 people were employed in the retail sector in March, and close to that number were also employed in manufacturing. Though manufacturing’s future remains less clear and the market could be buoyed by the region’s deep presence of food production, retail has been hard hit by the shutdown.

While being the state’s capital will provide some shelter in the coming months, Pennsylvania’s fiscal situation is a mess. Financial troubles could portend future government layoffs and by the third quarter, the state had already cut 2,500 government jobs.

There’s little chance the economy doesn’t cool in Central Pennsylvania but the market does have some factors working in its favor. BLS data shows the market has lost about 5% of its total non-farm employment levels since March. While this is obviously a significant reduction, it does compare well with nearby Lehigh Valley and Pittsburgh. While Harrisburg’s demographic gains won’t raise any eyebrows, the region does stand out in Pennsylvania. Cumberland County is one of the fastest-growing counties in the state, likely aided by the growing logistics and warehouse presence along the Carlisle Corridor.

The logistics sector is expected to hold up well and perhaps even grow as e-commerce continues its acceleration. An Adobe report from June showed that online spending was up 77% year over year, representing growth in e-commerce that experts were not forecasting the country to reach until 2026. Central Pennsylvania’s location is prime for shipping, and such a scenario could lead to more jobs and perhaps fuel additional growth in population.

Additionally, Central Pennsylvania is also 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. Education and health services jobs, which now track evenly with government jobs in the state’s capital, grew by more than 4% annually.

How does the ever-shifting economy impact the commercial real estate market, particularly as it pertains to commercial leases?

It comes as no surprise that industrial real estate leases in 2020 carried the largest square footage, with the top lease coming in at more than 1.1M SF to Lowes Distribution Center in Shippensburg. Additionally, Bob’s Discount Furniture will be moving into the former Best Buy in Lancaster, and Hershey will be getting a new Big Lots in the Hershey Square Shopping Center. The top five flex leases also provided businesses with hundreds of thousands of Class B Flex Space. Keep reading to view the top 5 leases from 2020 for office, retail, industrial, and flex space.

Top 5 Office Leases

#1 – 1929 Lasalle Ave – Bldg 134, Lancaster, PA 17601

High Associates Ltd. leased out the 29,000 SF Class C Office Building built in 1974 to Equipment Depot beginning in January of 2020 for a 1-year term. It had previously been vacant for 164 months.

#2 – 1803 Mt Rose Ave – Bldg B, York, PA 17403

Kinsley Properties leased out the 23,704 SF Class C Office Building built in 1988 to IDS, LLC beginning in February of 2021 for a 5-year term. It had previously been vacant for 13 months.

#3 – 990 Peiffers Ln – NRG Engine Services, Harrisburg, PA 17109

Campbell Commercial Real Estate leased out the 23,382 SF Class B Office Building built in 1987 to UPS Midstream Services Inc. beginning in February of 2020 for an unspecified term.

#4 – 1770 Hempstead Rd – Greenfield Corporate Center, Lancaster, PA 17601

High Associates Ltd. leased out the 16,088 SF Class B Office Building built in 1990 to an unnamed leasee beginning in November of 2020 for unspecified term. It had previously been vacant for 19 months.

#5 – 200 Corporate Center Dr – 200 Corporate Center Dr, Camp Hill, Camp Hill, PA 17011

Cushman & Wakefield leased out the 11,655 SF Class A Office Building built in 1986 to an unnamed leasee in August of 2020 for an unspecified term. It had previously been vacant for 52 months.

Top 5 Retail Leases

#1 – 3975 Columbia Ave, Columbia, PA 17512

The 86,100 SF Class B Retail Building built in 1992 was leased to U-Haul, as the single tenant, beginning in June of 2021.

#2 – 1801 Hempstead Rd – Former Best Buy, Lancaster, PA 17601

Bennett Williams Commercial and ShopCore Properties leased out the 45,915 SF Class B Retail Building built in 2009 to Bob’s Discount Furniture beginning in September of 2020 for a 10-year term. It had previously been vacant for 23 months.

#3 – 921 E Main St – Mount Joy Square Shopping Center, Mount Joy, PA 17552

Bennett Williams Commercial leased out the 44,761 SF Class B Retail Building built in 1989 to an unnamed business beginning in March of 2021. It had previously been vacant for 25 months.

#4 – 1130-1170 Mae St – Hershey Square Shopping Center, Hummelstown, PA 17036

Bennett Williams Commercial leased out the 38,202 SF Class B Retail Building built in 1994 to Big Lots beginning in June of 2020 for a 10-year term. It had previously been vacant for 12 months.

#5 – 4075 E. Market St – York, PA 17402

The Flynn Company leased 27,000 SF Class C Industrial/Manufacturing Building built in 1972 to No Piston, LLC beginning in October of 2020 for a 5-year term.

Top 5 Industrial Leases

#1 – 1 Walnut Bottom Rd – Shippensburg 81 Logistics Center, Shippensburg, PA 17257

Colliers International leased out the 1,100,500 SF Class A Industrial Building completed in 2020 to Lowes Distribution Center beginning in February of 2021. It had previously been a vacant shell space for 160 months.

#2 – 200 Goodman Dr – Building 2, Carlisle, PA 17013

CBRE leased out the 938,828 SF Class A Industrial Building built in 2017 to Syncreon beginning in December 2020. It had previously been vacant for 44 months.

#3 – 951 Centerville Rd – Penn Commerce Center – Building A, Newville, PA 17241

Cushman & Wakefield leased out the 807,998 SF Class A Industrial Building to an unnamed leasee. It had previously been vacant for 5 months.

#4 – 4875 Susquehanna Trl – ES3 LLC Bldg 1, York, PA 17406

The 790,042 SF Class B Industrial Building was leased to ES3, a Professional, Scientific, and Technical Services company, beginning in February 2020 for an unspecified term.

#5 – Centerville Rd – Penn Commerce Center – Building B, Newville, PA 17241

Cushman & Wakefield leased out the 753,000 SF Class B Industrial Building to an unnamed lease beginning on January 2021. It had previously been vacant for 3 months.

Top 5 Flex Leases

#1 – 60-64 Industrial Rd, Elizabethtown, PA 17022

Cushman & Wakefield leased out the 113,720 SF Class B Flex Space completed in 1992 to WillScot beginning in September of 2020. It had previously been a vacant shell space for 13 months.

#2 – 1740 Hempstead Rd – Building 380, Lancaster, PA 17601

High Associates, Ltd. leased out the 34,000 SF Class B Flex Space completed in 1964 to an unnamed business beginning in January of 2021. It had previously been a vacant shell space for 92 months.

#3 – 6400 Flank Dr, Harrisburg, PA 17112 – Harrisburg Area East Ind Submarket

NAI CIR leased out the 32,212 SF Class B Flex Space completed in 1987 to an unnamed business beginning in June of 2020. It had previously been a vacant shell space for 3 months.

#4 – 1000 Kreider Dr – Building A, Middletown, PA 17057

CBRE leased out the 12,030 SF Class B Flex Space completed in 2006 to an unnamed business beginning in August of 2020. It had previously been a vacant shell space for 8 months.

#5 – 3545 Marietta Ave – Silver Spring Center, Lancaster, PA 17601

Prospect Leasing & Management leased out the 7,192 SF Class B Flex Space completed in 1997 to an unnamed business beginning in January of 2021 for a 5-year term. It had previously been a vacant shell space for 6 months.

With so much square footage having exchanged hands in Central PA in 2020, it will be interesting and important to keep an eye on how these businesses impact the region. There were quite a few properties that made it to this list that had sat vacant for years. Now with new tenants, this will drive jobs and contribute to the local economy. And with some of these leasing terms for 5, even 10 years, these businesses have made a commitment to being here long-term.

Among all the top leasing deals that took place in 2020, which sector – office, retail, industrial, or flex – do you think will have the largest and most immediate impact on the Central PA region? Share your thoughts by leaving a comment below.

*Data of the top commercial real estate sales provided by CoStar.

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Growing U.S. Economy Drives Demand for Commercial Real Estate

Posted on February 13, 2020 by Mike Kushner in Blog, Commercial Real Estate, Trends No Comments

The current economic climate in the United States has been a bit of a roller coaster, and depending upon the industry you’re examining, you may find more ups than downs or vice versa. Trade wars, combined with a slowdown in the U.S. manufacturing sector and around the globe, shook up equity markets and businesses in 2019. But robust job growth has extended the spending power of American consumers, which is ultimately our nation’s economic engine, according to CoStar’s 2019 Year in Review of the U.S. Economy.

To put this into perspective, the United. States is currently experiencing the longest economic expansion since World War II. Additionally, key indicators point to the economy staying solid in 2020, which will extend the record bull run for U.S. commercial real estate. While there are some risks that could eventually move the nation toward a recession, as it stands, the growing U.S. economy is driving demand for commercial real estate, with many factors emerging as a result. Let’s take a look at what the most profound outcomes of this CRE growth.

The growing economy bodes well for demand for commercial and multifamily real estate.

What it means for CRE: Expanding payrolls will continue to fuel demand for office space, while rising incomes and consumption will boost demand in industrial and retail sectors. As job growth continues, consumers appear quite optimistic and unconcerned by the trade war and any economic slowdown abroad.

Migration of workers from the Northeast and Midwest is growing the labor markets, which is fueling real estate demand, specifically in the South and U.S. West.

What it means for CRE: With the increase in labor as well as a growing demand for real estate in the South and U.S. West regions, CRE developers and investors should look to these markets as viable areas of growth. An increase in job creation also means a rising demand for office spaces and apartments. Property management will benefit from high occupancy rates, and job growth will lead to an increase in leasing. With low interest rates, commercial prices will likely see some gains.

The answer to combat rising development costs and rental prices in urban areas may be micro-apartments.

What it means for CRE: Simply put, micro-apartments extract the most value from every square foot. Standardized designs and “pre-fab” or modular construction cut development costs and shorten construction time, meaning developers could reduce expenses and start generating rental income more quickly. Some developers are designing studio apartments that are one-fifth the size and 40% of the cost of a typical studio, netting out to as little as 175 square feet.

Investing in industrial real estate, over retail, is the safer bet.

What it means for CRE: The industrial vacancy rate is extremely low, in many cities it’s below 5%, even 1% to 2% in some areas. Meanwhile, internet sales are cannibalizing traditional retail spaces, such as department stores, malls, and shopping centers. A unique aspect of this changing market is the emergence of “click-to-brick” retailers, like Amazon, that are establishing small retail stores in key areas. These spaces don’t carry much inventory, but they give customers the opportunity to interact with physical products and place an order. So for CRE investors and developers, industrial real estate carries more certainty and less risk than retail at this time.

Moving into the new decade, economists expect economic growth to slow somewhat as the labor market cools.

What it means for CRE: Consumer spending may lose some momentum and persistent global and trade policy headwinds weigh on business sentiment and investment. For commercial real estate, 2020 should remain a solid year of growth, especially for the industrial market. Though real estate professionals should remain strategic and always be looking ahead to factors that could impact economic growth, and CRE growth as a result.

What is your view of the current state of the nation’s economy right now? How do you anticipate this changing in 2020? Share your thoughts and insights by leaving a comment below.

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Central PA’s Growth in Commercial Construction Creating Workforce Challenges

Posted on December 19, 2019 by Mike Kushner in Blog, Construction, Local Market, Trends No Comments

With new commercial construction projects popping up all across Central Pennsylvania, it may appear as though it’s a great time to be in the industry. A demand for more commercial construction usually means businesses are growing or moving into the area, bringing with them jobs and economic growth. But there’s one looming challenge that stands in the way of this growth having only upside, and that’s the lack of commercial construction workers to take on this work.

According to Commercial Observer, this workforce challenge is not limited to the Central Pennsylvania region. Rather it’s a nationwide issue that could have wide-spread impact. A serious gap exists between the upcoming demand for labor and the number of available workers with the skills needed to fill those positions.

How does this gap in skilled laborers stand to impact the commercial real estate construction industry? And what, if any, solutions exist? For further input on this issue, Omni Realty Group turned to Dave Sload, President and CEO of ABC Keystone.

ABC Keystone was established in 1959 with the mission of advancing and defending the principles of free enterprise in the construction industry. Today, the organization is a powerhouse with 69 chapters and over 21,000 members. It is one of the leading organizations representing America’s business community and the construction industry.

“The construction industry is already in a critical state when it comes to finding skilled workers. They simply are not out there and it is forcing companies to pass on some projects,” says Sload.

Commercial construction companies being stretched so thin on labor that they decline work illustrates the severity of the labor shortage and the ominous threat it poses on the industry. The real struggle is construction spending is not predicted to subside. In fact, growth over the next two years is substantial.

According to FMI’s 2019 Industry Outlook, total construction spending in the Mid-Atlantic region, which includes Pennsylvania, New York and New Jersey, should increase 5 percent year over year, from $153.6 billion to $161.3 billion. It is predicted that this trend will hold in coming years, with anticipated spending increasing at a rate of 4.5 percent between now and 2022.

Combine this with the fact that the construction industry unemployment has dropped to an 18-year low, and you have the recipe for a sustained labor shortage that will lead to higher labor costs, longer project schedules, and inevitably quality and safety issues that will result from understaffed crew and under-qualified workers.

Sload adds, “Things will only get worse in the future. 40% of the construction workforce will retire over the next ten years. It will not be just the skilled workers we lose but also decades of institutional knowledge.”

Construction jobs are a cornerstone of our local economy, with thousands of well-paying jobs created every year. The latest job openings data from the Bureau of Labor Statistics suggests that since 2014, while the number of jobs openings has almost doubled, the number of hires has increased by just 14 percent. This underlines the fact that it is not a lack of jobs, but a lack of laborers to hire for such jobs.

Sload continues, “If that is not enough, this country is in desperate need of infrastructure legislation to update our highways, airports, wastewater treatment plants and water systems. Should an infrastructure bill pass in the range of what has been proposed, we would immediately be another 500,000 skilled workers short.”

All of this begs the question, “What is the solution?” Construction business owners and other hiring entities have started exploring all viable options for employing and retaining qualified workers. Possibilities include increasing and improving recruiting efforts; retaining qualified workers during periods of slow work so they are more readily available; investing in skills training and continued education programs; and working harder to nurture internal talent, especially to retain institutional knowledge.

While none of these solutions may be the “silver bullet” the industry needs right now, it’s evidence that the issue is not being ignored, and companies are willing to get creative and collaborative with whatever combination of solutions prove to move the needle.

Have you felt the impact of workforce challenges, either personally or within your business? Or do you have a different opinion as to how the commercial construction industry may address this issue?

Join in the conversation by leaving a comment below.

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How Opportunity Zones Could Impact Central PA Real Estate

Posted on December 26, 2018 by Mike Kushner in Blog, Commercial Real Estate, Construction, Guest Blogger, Local Market, Trends No Comments

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

Opportunity Zones are being referred to as “real estate’s most exciting new investment vehicle,” but what are they and can they really live up to this title?

How this type of investment works and why it stands to be so beneficial is essentially this: capital gains are invested in Opportunity Zones, taxes are deferred, the basis is lowered, taxes are then paid in 2026 (at the same nominal value as in 2018), and after 2028 the Opportunity Zone holding can be sold with no capital gains tax due.

Better yet, there are very few restrictions on the properties in which one can invest. It’s estimated that there are $2.3 trillion worth of unrealized capital gains in the U.S. Even if only 15 percent of this is invested in Opportunity Zones, this will exceed the 2017 corporate income tax revenue and almost match the Medicaid spend of that same year.

The potential benefits don’t stop there. Opportunity Zones can also provide a tax deferral on gain that investors invest in a fund, and the elimination of gain in the new Opportunity Zone investment if it is held for more than 10 years.

This should paint a clearer picture as to why Opportunity Zones have real estate investors abuzz. To answer the most essential questions related to Opportunity Zones, and specifically how they stand to impact Central Pennsylvania real estate, Omni Realty has asked Silas Chamberlin to share his expertise and insight on this topic.

Silas Chamberlin, PhD is the Vice President, Economic & Community Development at York County Economic Alliance. Prior to joining YCEA in fall of 2018, he served as CEO of Downtown Inc. Chamberlin has also served as executive director of the Schuylkill River National Heritage Area, an organization promoting economic revitalization in five counties of southeastern Pennsylvania. And he has held leadership positions in the non-profit sector and state government. Throughout his career, Chamberlin has focused on helping communities leverage their unique assets to create opportunities for economic development and a higher-quality of life.

Mike Kushner of Omni Realty and Silas Chamberlin jump right to the meat of things starting with the local impact of Opportunity Zones, using the Greater York Area as a sampling.

Omni: How many census tracts in York County were approved for the Opportunity Zone program? And where?

Silas Chamberlin: York County has five designated tracts. All tracts are located in the City of York and are the tracts which encompass most of the city’s brownfield sites. Tracts in Hanover and Wrightsville were eligible for designation, but were not selected by the state.

Omni: Specifically, how will this program benefit the Greater York Area and how soon do you expect to see an initial impact?

SC: Opportunity Zones will attract additional investment to qualified projects in our five opportunity zones. The tax break should help draw investors’ attention to projects that have not benefited from private investment in the past. YCEA is a working partner to help identify viable projects within the zones to market to Qualified Opportunity Fund investors. We are also vetting the creation of local and regional funds focused on the city’s zones.

In theory, we could see funds begin investing in qualified projects at any time. Opportunity Zones are intentionally driven by the free market and individual investment decisions, so it is difficult to tell how much investment will end up in York. Observers at the national level have noted that there may be more private capital available than viable projects, so York should certainly position itself to take full advantage.

Omni: Are the tax breaks provided through this program enough to incentivize private investors and spur activity?

SC: The short answer is yes. But it would be inaccurate to view Opportunity Zones as a panacea that will turn vacant buildings into viable investment opportunities overnight. The most competitive projects will be those that are already viable without Opportunity Zone funds, but would benefit from additional investment.

Unlike New Markets Tax Credits or other popular programs, Opportunity Fund investments are unlikely to subsidize a project because the project must be able to grow in value and return an investment to the fund. YCEA’s strategy is to identify viable projects within Opportunity Zones and then use the designation to attract investors’ attention. We see this as yet another tool in our economic development financing toolbox.

Omni: Are there any drawbacks to the Opportunity Zone program?

SC: Opportunity Zones rely on a self-certification process for creating a fund, which means that investors have lots of autonomy. This also means that economic development organizations and municipalities may not always be aware of investments being made in their zones. Because the zones are distressed areas by definition, there is a higher risk that outside investment could change neighborhoods and business districts without any local engagement or controls. There are potential controls that could help guide development in Opportunity Zones—such as zoning overlays—but these tools are not yet well developed, especially in smaller cities.

Finally, there is the risk for disappointment. Opportunity Zones absolutely provide another tool to attract investment, but there is a risk in promoting them as transformational and raising the hopes of residents and developers that untapped capital will begin flowing into the census tracts that need it the most. While there is reason to be hopeful, the reality of matching qualified investors to viable projects may narrow the scope and impact of the tax break.

The Bottom Line

Experts predict that after an initial wave of Opportunity Zone fund offerings in early 2019, there may be a pause that coincides with the issuance of additional regulations during which market participants will evaluate fund and project structures. After that, barring the rise of general economic headwinds, it should be full steam ahead for Opportunity Zone funds moving forward.

From a real estate perspective, Opportunity Zone projects need to be viewed as development projects because the requirement is to create new property or substantially improve property. To reemphasize Silas Chamberlin’s point, there is surely reason to be hopeful that Opportunity Zones will flow capital into census tracts that need it the most. But we must remain cautiously optimistic about how quickly and substantially this capital will come about. Much like anything related to real estate, and especially real estate investment, most outcomes remain at the mercy of the market and ever-changing government regulations.

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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.

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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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Hundreds of Thousands of Square-Feet of New Office Space Coming to Central PA in 2016

Posted on August 1, 2016 by Mike Kushner in Blog, Local Market, Trends No Comments

Two new construction projects, located at the intersection of Carlisle Pike and Hogestown Road in Mechanicsburg, will deliver 258,000 square-feet of office space to Central Pennsylvania this year. Silver Spring Township is calling this construction “Class A Office Space Project” and are confident that, by attracting new businesses to the area, this space will benefit the entire community and its existing businesses.

Here’s a look at how the market has responded to this new space, as well as our analysis of the long-term trends that are yet to come.

Select Year-to-Date Deliveries/Top Under-Construction Properties:

In Q2 2016, Central Pennsylvania had just one building delivered, but it was substantial. Ranked number one on the Greater Philadelphia list of Year-to-Date Deliveries is the office space located at 974 Hogestown Road, Building 200, Mechanicsburg. It is Class A office space that is 100% occupied. Another 129,000 square-feet building, also located on Hogestown Road is under construction and projected to be completed in Q3 2016.

Absorption and Demand:

In Q2 2016, the net absorption has almost doubled since Q1 2016 and is nearly six times larger than it was in Q4 2015. In Q4 2015 it was 50,949 square-feet, increasing to 162,531 square-feet and further increasing this quarter to 301,337 square-feet. This is the largest net absorption we have seen in over a year, compounded by the fact that Central Pennsylvania’s last four years of net absorption has been varied and volatile. One new building delivered this quarter contributed 129,000 square-feet of pre-leased space to the market. There are 2 more buildings currently under construction and they are expected to deliver 136,590 square-feet of space to the market later this year.

Vacancy:

The vacant square footage decreased from 3,705,257 square-feet (Q1) to 3,532,920 (Q2). The vacancy rate also decreased to 6.5% (down 0.3% from last quarter). This is the lowest vacancy rate we have seen since prior to Q3 2012 and is only the second time it’s dipped into the 6.0% range, with last quarter being the first time. Though the vacancy rates have bounced slightly between increasing and decreasing each quarter since 2012, the overall trend has been a decrease.

Rental Rate:

This quarter, the quoted rental rate decreased from $17.32 (Q1) to $17.25. This is the first decrease that we have seen since Q3 2013. However, the fact that the price per square foot still remains above $17.00 makes it a higher price point than the market has experienced between the years of 2012-2015.

Employment:

Pennsylvania’s unemployment rate rose to 5.6% in June. The local labor force declined by 4,000 from May’s record high level of 6.54 million. The Pennsylvania Department of Labor reported that nine of the 11 sectors actually posted job increases in June; however, the two sectors that posted a loss, mining and logging and trade, transportation and utilities, were enough to cause the unemployment rate to rise. They each posted job losses of 600.

Our Summary/Analysis:

Silver Spring Township’s “Class A Office Space Project” is drawing new business into Central Pennsylvania. With 129,000 square-feet of 100% occupied space delivered to the market this quarter and another building of the same size to be delivered next quarter, there is a proven demand for this space. Furthermore, this spur of activity has the potential to draw even more businesses into the area who want to be part of the growing business community. This would come at an opportune time as the local market is experiencing a rise in unemployment.

What trend this quarter do you think will have the greatest impact on the Office Real Estate market moving forward? Share your insight by commenting below!

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Robust Growth Predicted in 2016 for Central PA Industrial Real Estate Market

Posted on January 8, 2016 by Mike Kushner in Blog, Local Market, Trends No Comments

Are you ready to start off 2016 with some good news? The industrial real estate market in Central Pennsylvania is riding a wave of robust economic growth and all signs point to a continuing boom that could be the greatest in the sector’s history!

Looking at the fourth quarter data, our latest research confirms that the industrial sector of the local real estate market has now absorbed over 8.5 million square feet of warehouse space since first quarter 2015. With virtually every industrial sector experiencing increased demand—from data processing hubs to distribution space and manufacturing centers—the four quarters of 2015 saw more demand for industrial space than compared to the last 20 years.

What exactly is driving this demand and what other trends can we expect to result from this economic growth? Let’s take a look!

Three factors driving this high level of industrial demand:

Employment: Across the nation, the real GDP has been expanding at a better than 4% growth rate since April of 2014 (nearly 150 bps higher than the historical norm). The faster rate of growth has triggered a burst of new hiring across nearly all job sectors and geographies. The U.S. economy created 2.9 million net new nonfarm jobs in 2014, and more specifically, industrial employment grew by 442,000 net new payrolls in 2014 – the most industrial-related job growth in 17 years.

Looking specifically at Harrisburg-Carlisle MSA, the unemployment rate is 3.5 percent as of November 2015 and the lowest it has been in recent months. We also closed the year with 294,626 nonfarm jobs which is nearly 7,500 more jobs than last year at this time and among the highest we have seen throughout 2015.

Manufacturing: Adding to the good news is the ISM Manufacturing Index, which has been in solid expansion mode for 25 consecutive quarters. Such robust trends have led to a 5.2% year-over-year increase (nationally) in industrial production—a rate of growth that went unmatched throughout the 2000’s.

Again looking locally, Harrisburg-Carlisle MSA, Lancaster MSA and York-Hanover MSA each rank among the top 10 regions in the state for manufacturing jobs. Combined, these areas (that correlate with CoStar’s Central PA submarket) employ a total 89,356 people in this industry alone, as of second quarter 2015. Manufacturing jobs continue to trend upward after recovering from a major dip in 2010.

Oil Prices: The past six months of continually falling oil prices have given the bulk of the U.S. economy an additional boost and will provide another tailwind for growth moving forward. Since June of 2014, crude oil prices (WTI) have declined more than 50%, making the national average gas price $2.17 per gallon as of mid-January, 2015. Most consumers and businesses are responding favorably to the drop in energy prices, and consumer spending has ramped up for vehicle sales, durable goods, building materials, clothing and accessories, food and beverage, etc.

In the Harrisburg-Carlisle MSA, oil prices are down about 18.6 percent from last winter, beating the U.S. Energy Information Administration’s prediction of a 15 percent drop this winter. The average for heating oil was $2.999 on Dec. 1, according to the Energy Information Administration, compared with $3.683 a year ago. Local Marcellus Shale production has helped keep oil prices low while also adding jobs to the economy.

Final Takeaways

All of these factors bode well for industrial real estate, even as the rising value of the dollar and weakening economic conditions abroad present headwinds for the year ahead.

Additionally, new construction activity is showing no signs of slowing as there is currently 3.5 million square feet under construction in the Central Pennsylvania Submarket, of which 98% is being constructed on spec. The majority of new spec inventory is expected to deliver in the first quarter of 2016 and will push the overall vacancy rate northward for the market.

Despite the large amount of spec space coming online next quarter, tenant demand has been particularly strong in new inventory constructed over the past two years, evidenced by the market’s low vacancy and strong positive absorption.

The new space that has come into the market at the end of 2015 should continue this trend and generate a significant amount of activity in the near-term.

Which of the market factors discussed do you believe will be most powerful in 2016 and beyond? Join in the conversation by commenting below!

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Second Quarter 2014 Shows Central PA Industrial Market Preparing for Growth

Posted on October 13, 2014 by mike.kushner in Blog, Commercial Real Estate, Local Market, Trends No Comments

Without a careful eye, you might think that the data for Second Quarter 2014 was simply copied and pasted from the First Quarter. In reality, you wouldn’t be too far off. The Second Quarter for the Industrial Market did not bring about too many changes or advancements. Much like the Office Market, changes were minimal, yet still important to note.

More of the Same

The market’s existing inventory, delivered inventory, under construction inventory and vacancy did not move with any degree of significance. However, net absorption fell from 583,945 square feet to 58,704 square feet. This is a continuing trend from Fourth Quarter 2013 when net absorption was 1,783,592 square feet and fell to one-third of this number by the following quarter. This is also the lowest we have seen net absorption since one year ago at this time.

Additionally, there was a slight change in quoted rental rates which fell from $3.91 last quarter to its current $3.86. This is the lowest rate we have seen all year.

While most of Second Quarter 2014 brought us more of the same for the local industrial market, there are some exciting signs of growth for the not too distant future. Let’s take a closer look at some of the top under construction properties and top industrial leases for this quarter to analyze the growth and movement of new industrial businesses into the Central Pennsylvania submarket.

Central Pennsylvania ranks highest with Top Under Construction Properties of the quarter

Three of the Top 5 Under Construction Properties in CoStar’s Philadelphia Industrial Market are located in the Central Pennsylvania submarket. Number one on the list is Liberty at Shippensburg on Olde Scotland Road. This building has an RBA of 1.7 million and is 100 percent preleased. It is expected to be delivered in third quarter 2014. Third of the Top 5 is the Nordstrom distribution center on Zeager Road which has an RBA of more than 1.42 million and is 100 percent preleased. This will be delivered in first quarter 2015. Fourth of the Top 5 is a building located at 766 Brackbill Road in Kinzers and leased by Urban Outfitters Inc. It has an RBA of 1.14 million, is 100 percent preleased and will be delivered in first quarter 2015.

The local market is also a leader among Top Industrial Leases

Three of the Top 5 Industrial Leases (based on lease square footage for deals signed in 2014) in CoStar’s Philadelphia Industrial Market are located within the Central Pennsylvania submarket, specifically Harrisburg West. Number two of the Top 5 is a building located at 40 E. Main Street with 242,520 square feet. Number three of the Top 5 is a building located at 6 Doughten Road with square feet that was leased by KENCO. And number five of the Top 5 is a building located close to number two at 34 E. Main Street and has 180,333 square feet of space. This building was leased by Allen Distribution.

Is this a sign of good things to come?

Central Pennsylvania continues to be a dominant player among major logistics markets. “Large” is indeed big right now. Industrial buildings are setting new records for scope, as distribution centers greater than one million square feet become more prevalent. The need to improve supply chain efficiency to save time, money and fuel is a driving force behind the rise of giant distribution centers. It seems likely that the market for industrial space should remain resilient, which allow companies to experiment with different fulfillment strategies and respond to the demands of high-turnover online retailing.

What’s most important to consider is the inherent conflict between the need for space and the availability of such space in major markets. Mega distribution facilities and the operations within them often require significant land parcels to accommodate larger truck courts and parking areas. However, major parcels, in major markets, closer to an urban core are limited and, ultimately, finite.

What are your expectations and predictions for the Central Pennsylvania Industrial market over the coming months and years? Share your own insights by commenting below!

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Top 5 Growing Industries in Central Pennsylvania

Posted on October 1, 2014 by mike.kushner in Blog, Local Market, Trends No Comments

In some way, shape or form, we have all felt the impact of a struggling economy as it tries to heal itself. While data shows that things are heading in the right direction, it will not be a quick or instant fix. Luckily several industries in the Central Pennsylvania region have begun to see a small burst of growth and are projected to lead the way now through 2020 as the top growing industries.

What does the current health of our local workforce look like? And what top five industries are expected to see the most growth over the coming years? Let’s take a closer look at the statistics provided by the Pennsylvania Department of Labor and Industry.

Current Unemployment in Central Pennsylvania and the Commonwealth

As of August 2014, the unemployment rate in Harrisburg-Carlisle, PA MSA was 4.8 percent or an estimated 13,800 people currently without jobs. For the entire commonwealth of Pennsylvania, the current unemployment rate is 5.8 percent or an estimated 367,000 people currently without jobs. From one year ago at this time, this is a 1.6 percent improvement in the Commonwealth’s unemployment rate. What this data is telling us is that things are moving in the right direction, particularly in Central Pennsylvania, just perhaps at a rate slower than what we would prefer.

As this growth continues, it’s important to keep a pulse on the industries that are growing the fastest and how this might impact other areas of our economy, including commercial real estate. Here are the top five growing industries in Harrisburg-Carlisle, PA MSA based upon the highest estimated total employment change for the 2010-2020 time period.

Source: Pennsylvania Department of Labor and Industry

Administrative and Supportive Services

In 2010, it was estimated that there were 14,780 people employed as Administrative and Supportive Professionals. By 2020, this is projected to increase to 18,230 with a total employment change of 3,450 jobs.

Ambulatory Health Care Services

For Ambulatory Health Care Services, it was estimated in 2010 that 12,250 people were employed in this industry. By 2020, this is projected to increase to 14,690 with a total employment change of 2,440 jobs.

Professional, Scientific and Technical Services

In 2010, it was estimated that 14,120 people were employed by the Professional, Scientific and Technical Services industry. By 2020, this is projected to increase to 16,370 with a total employment change of 2,250 jobs.

Food Services and Drinking Places

In 2010 it was estimated that 18,190 people were employed by the Food Services and Drinking Places industry. By 2020, this is projected to increase to 19,890 with a total employment change of 1,700 jobs.

Hospitals

In 2010, it was estimated that 13,980 people were employed by hospitals. By 2020, this is projected to increase to 15,470 with a total employment change of 1,490 jobs.

What this means for the Central Pennsylvania Commercial Real Estate Market

Overall, strong job creation is expected to have a positive impact on the multifamily sector. As for commercial real estate, the demand for office space may also increase, but employers continue to pare per-employee space requirements, carefully considering space needs because of changing technology.

Job reductions in retail and branch banking, largely due to changes in consumer behavior and online technology, will take a toll on housing. This trend may benefit the apartment sector, but could negatively impact the retail real estate sector.

Do you find these growing industries to be expected or surprising? Share your insights by commenting below!

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