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

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

Photo: Walden in Mechanicsburg, PA

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

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

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

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

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

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

Omni: Describe a LWP community in Central PA.

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

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

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

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

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

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

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

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

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

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

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

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

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

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Central PA Office Submarkets End Quarter with Very Different Outcomes

Posted on November 8, 2018 by Mike Kushner in Blog, Local Market, Trends No Comments

Lancaster closes Q3 with the strongest market while Harrisburg West shows signs of distress.

The submarkets that make up Central Pennsylvania’s office real estate market each have unique advantages and disadvantages that really show through when you examine each individually. With the close of the third-quarter, we took a closer look at how the four main submarkets performed individually and comparatively.

The outcomes should surprise you! You may think you know which of the four submarkets outperformed the others, which one is most likely in distress and the others that are sitting pretty stagnant right now. But you’ll likely be shocked by the large variances in numbers, especially when compared to the historical averages and forecasted averages of what is yet to come.

Let’s take a closer look at some of the most interesting trends and numbers reported from CoStar’s Q3 2018 office report for Harrisburg East, Harrisburg West, Lancaster and York.

Harrisburg East

Vacancy – The vacancy rate for Q3 2018 in the Harrisburg East submarket is 6.4%. This is notably lower than the historical average of 7.8% and the forecast average shows this dipping lower to 5.7%. For comparison, the peak in vacancy rate occurred in Q4 2012 when it reached 10.8% and the trough was in Q4 1997 when it plummeted to 3.1%.

12 Month Net Absorption in SF – The twelve-month net absorption is 106,000 square-feet. While this is still lower than the historical average of 187,046 square-feet, the forecast average predicts the current net absorption will fall significantly to 61,648 square-feet. Though not by much, net absorption will at least remain in the black for now.

Rent Growth – The current 12 month rent growth is 2.0%. This is higher than the historical average of 1.4%, though the forecast average predicts that this will fall to 0.7%. For comparison, the peak in Harrisburg East’s rent growth occurred in Q1 2001 when it reached 8.3% and the trough was in Q4 2009 when it plummeted to -2.4%.

12 month deliveries in SF – Harrisburg East has a twelve-month delivery of 30,000 square-feet. This takes into account all of the deliveries that occurred over the last year; however no new buildings were delivered specifically in Q3 2018. Additionally, 20,000 square-feet of 4 and 5 star office space is under construction, which will be delivered in coming quarters.

Harrisburg West

Vacancy – The vacancy rate for Q3 2018 in the Harrisburg West submarket is 7.3%. This is slightly higher than the historical average of 7.0%; however, CoStar’s forecast average predicts this to dip to 5.6%. For comparison, the peak in vacancy rate occurred in Q2 2002 when it reached 9.8% and the trough was in Q4 1997 when it plummeted to 2.5%.

12 Month Net Absorption in SF – The twelve-month net absorption is negative 258,000 square-feet. The historical average is 95,454 square-feet and the forecast average predicts the market will again return to positive numbers with 25,193 square-feet. Q3 net absorption is not far from where it was in Q4 2014 when it was negative w 292,042 square-feet. Since then, it peaked in Q3 2016 at 611,057 square-feet before falling substantially to its current negative state.

Rent Growth – The current 12 month rent growth is 1.9%. This is higher than the historical average of 1.4%, though the forecast average predicts that this will fall to 0.6%. For comparison, the peak in Harrisburg West’s rent growth occurred in Q3 2000 when it reached 7.1% and the trough was in Q4 2009 when it plummeted to -2.8%.

12 month deliveries in SF – Harrisburg West has a twelve-month delivery of 40,000 square-feet, compared to the historical average of 127,660 square-feet. This takes into account all of the deliveries that occurred over the last year; however no new buildings were delivered specifically in Q3 2018. Additionally, 26,400 square-feet of 3 star office space is under construction, which will be delivered in coming quarters.

Lancaster

Vacancy – The vacancy rate for Q3 2018 in the Lancaster submarket is 3.6%. This is notably lower than the historical average of 6.8%; the forecast average predicts this remain fairly stable at 3.7%. For comparison, the peak in vacancy rate occurred in Q4 2004 when it reached 9.7%. The lowest the vacancy rate has ever been in Lancaster County is actually right now, in Q3 2018.

12 Month Net Absorption in SF – The twelve-month net absorption is 324,000 square-feet. The historical average is substantially lower than what it is currently and that is 109,103 square-feet. The forecast average predicts net absorption will decrease to 89,086 square-feet.

Rent Growth – The current 12 month rent growth is 4.9%. This is significantly higher than the historical average of 1.3%, though the forecast average predicts that this will fall to 1.6%. For comparison, the peak in Lancaster’s rent growth occurred in Q3 2000 when it reached 6.9% and the trough was in Q4 2009 when it plummeted to -5.0%.

12 month deliveries in SF – Lancaster has a twelve-month delivery of 12,000 square-feet, compared to the historical average of 114,237 square-feet. This takes into account all of the deliveries that occurred over the last year; however no new buildings were delivered specifically in Q3 2018. Additionally, 81,840 square-feet of 4 and 5 star office space is under construction, which will be delivered in coming quarters.

York

Vacancy – The vacancy rate for Q3 2018 in the York submarket is 5.3%. This is lower than the historical average of 6.9%; the forecast average predicts this remain fairly stable at 5.4%. For comparison, the peak in vacancy rate occurred in Q1 2008 when it reached 10.5%. The lowest the vacancy rate has ever been was 2.2% in Q4 1998.

12 Month Net Absorption in SF – The twelve-month net absorption is 29,500 square-feet. The historical average is 72,892 square-feet. The forecast average predicts net absorption will decrease to 8,847 square-feet.

Rent Growth – The current 12 month rent growth is 1.6%. This is fairly close in line with the historical average of 1.1%, though the forecast average predicts that this will fall to 0.6%. For comparison, the peak in York’s rent growth occurred in Q3 2000 when it reached 6.8% and the trough was in Q3 2009 when it plummeted to -4.3%.

12 month deliveries in SF – York has a twelve-month delivery of 0 square-feet, compared to the historical average of 80,056 square-feet. The forecast average predicts that this rise to 13,093 square-feet. Additionally, 22,000 square-feet of office space is under construction, 17,000 square-feet of 4 and 5 star space and 5,000 square-feet of 3 star space, which will be delivered in coming quarters.

Key Takeaways

Overall, York County and Harrisburg East have been very stable. Not much is moving the needle. There is not a lot of absorption nor much new construction that could spur activity.

The real positive news from Q3 2018 is Lancaster County. This submarket rose above the rest for several reasons. First is its 324,000 square-feet in net absorption and 4.9% rent growth (highest since Q3 2003). Additionally the vacancy rate decreased 2.3%. Currently there are 81,840 square-feet under construction and 89,166 square-feet of new construction proposed.

In contrast, the Harrisburg West submarket is showing signs of distress. Its negative 282,000 square-feet of net absorption combined with a modest vacancy rate increase of 1.6% does not offer much hope for a major turnaround anytime soon. Additionally, the submarket has 86,400 square-feet of new office space under construction and 225,596 square-feet of proposed new space that the market will struggle to absorb, further driving down the net absorption.

Based on the activity taking place in Central Pennsylvania’s office real estate submarkets, how do you think this will impact business growth and development throughout these counties? How will this have a ripple effect into other areas of our economy?

Share your ideas by leaving a comment below!

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Central PA Retailer Shares Challenges and Strategies for Competing with Online Retailers

Posted on July 27, 2018 by Mike Kushner in Blog, Local Market No Comments

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

In June, the Supreme Court ruled that states can begin to collect sales tax on web purchases. Previously, online sellers who did not have a physical presence (or “nexus”) in a given state had a perceived advantage over sellers that did. This is because these online retailers did not have to collect and remit sales tax back to the state in which the buyer lived. Rather, it was the buyer who was supposed to, at the end of the year, take all the purchases he or she made online that were not collected, calculate the sales tax, tally up the total and remit it to the state at tax time.

If we’re all being honest with ourselves, we know that it’s no stretch to say that this method for collecting sales tax for online purchases was costing states up to $33.9 billion annually in payments that were simply never made. Now that states have been given control to collect sales tax on web purchases, how will this impact our retailers? Moreover, how will this impact the use of and need for commercial retail space?

For insights we went straight to the source. Omni Realty Group interviewed Central PA retailer and owner of World Cup Ski & Cycle in Camp Hill, Pennsylvania, Lee Gonder. Lee is a wealth of knowledge when it comes to running a successful a local retail store and competing against online retailers. Through the questions and answers below, you will gain a better understanding of challenges brick-and-mortar retailers are up against and how the smart ones are developing strategies to provide unique benefits to customers that online retailers simply cannot replicate.

Omni Realty: As a local, brick-and-mortar retailer, how have you been impacted by online retailers?

Lee Gonder: It’s difficult to quantify the impact of online retailers in dollars, but it’s easy to see their effects in day to day business. With online retailing, the consumer no longer has to compromise on their purchase; they will go find exactly what they want. As a small, local retailer it’s impossible to stock, service or even know about every conceivable product within your industry.

In the past, you could explain the choices you made in your inventory and why they were best suited for the local consumer. Most of those educational opportunities are gone with the internet. All research is done online and the retailer is no longer the expert. With the availability of virtually any product online, not only can the consumer research their purchase, but more than likely have a direct link to be able to make the purchase. We’ve been affected on both big ticket items like bikes and skis, but we also take an incremental hit on everything from ski wax to bike chains and other accessories.

Omni: If you had to pick one thing, what would you say is your biggest competition right now?

Lee: Online retailing would have to be our biggest competition right now. In the ski industry, there are a number of domestic companies that do a good job of providing consumers with numerous options for purchase. The ski industry does a reasonable job of requiring its dealers to maintain minimum advertised pricing (MAP). With the current MAP policies it allows my business to compete on price, just bringing inventory choice in as the major obstacle to making a sale.

However, in the bike industry it is quite different. There are numerous international companies that really make competing for the consumer very difficult. The international companies are not governed by the MAP policies that we U.S. retailers are asked to abide by. Therefore, not only can we not compete in the inventory game, but quite often they have pricing that is equal to or sometimes less than my wholesale. Add in two-day free shipping, and there go a lot of my incremental parts and accessory sales.

Omni: Given the recent supreme court ruling to allow states to tax online purchases, do you think this will drive more business back to local brick-and-mortar retailers?

Lee: Simply put, no. Many of the larger online retail services, like Amazon, already have nexus in the state of PA. They already had to collect and remit sales tax. It may help curb the purchasing of some bigger ticket items, but I think the effect will be minimal.

Speaking as a retailer, it will make me rethink how I handle my webpage, which is ecommerce enabled. Now I will have to collect and remit tax to other states if I sell something on my site to an out-of-state consumer. That becomes another hurdle for a small business, to track and remit sales tax to out of state government agencies. I think for a small, local business it may indeed just make things a bit more difficult. The larger companies that have the infrastructure to handle these changes will be able to continue with their online retailing with a few internal adjustments.

Omni: How have you had to adjust your business strategy to compete with online shopping?

Lee: Our focus over the past several years has been to invest in technology or services that can’t be bought on the internet. Precision ski tuning equipment, bike fitting equipment and ski boot fitting equipment and knowledge. Some services can’t be easily addressed online, so we’ve made investments in those areas. We’ve trained the staff to sell that service, use the equipment and that is what sets us apart from the online retailer.

Conclusion

Competing against online retailers is no easy task for our local, brick-and-mortar stores. Though the Supreme Court ruling to allow states to collect sales tax on web purchases was intended to level the playing field for retailers, it’s not exactly an immediate windfall for local retailers.

However, commercial real estate professionals could see a boost in demand for commercial retail space as both conventional and online retailers may put more stock in brick-and-mortar locations since there is no longer an advantage to not having a physical location in each state. In fact, being closer and more accessible to customers will become an even greater advantage for retailers.

For this reason, commercial real estate remains a critical aspect of any retailer’s business strategy. Location, visibility and flow of space has a profound impact on how customers find you and their customer service experience. Retailers who wish to remain competitive against online retailers, or even other brick-and-mortar retailers, should closely consider whether their commercial space is meeting the needs of the business and their customer base.

Through the insights shared in this article, it’s obvious that local retail businesses will continue to face some unique challenges, even after the Supreme Court ruling on online sales tax. Being strategic with the location and type of commercial retail space a business invests in can help deliver exceptional customer service, and in turn earn more business!

Do you agree or disagree that something more should be done to level the playing field between online retailers and local retailers? Share your ideas or ask a question by leaving a comment below!

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Predictions for Trends and Changes in Commercial Real Estate in 2017

Posted on February 6, 2017 by Mike Kushner in Blog, Commercial Real Estate, Trends No Comments

It’s the start of a new year and naturally this turns our attention toward what we predict will happen in the coming 12 months. Specifically in the commercial real estate market, there are several noteworthy trends and changes we predict to take place in 2017. What are these and how will they impact the various sectors of commercial real estate? Here’s the breakdown!

Office Real Estate

Experts are predicting that suburban markets will outperform downtown markets in 2017. Suburban rent growth is anticipated to exceed 2% while vacancies will only increase 10 base points (to 14.5%). In contrast, downtown vacancies are expected to increase by 30 base points (to 10.9%). The explanation to this growth is that suburban development is catering to millennials who want to live, work and socialize all in the same area. While national occupancy in downtown office space will still far exceed the suburban markets, suburban office space will have a much higher growth rate in 2017, relatively speaking.

Industrial Real Estate

Out of all of the sectors, industrial real estate will have the best year in 2017. Major growth in e-commerce as well as technological advancements, like driverless vehicles, have been fueling this sector’s growth. As these industries continue to thrive, so will industrial real estate! Availability sits at a 15-year low while net occupancy achieved its 26th quarter of record gains (as of Q3). Best of all, rents continue to climb toward a record-setting high. Because it wouldn’t be fair not to throw in a little bad news to keep things balanced, the sector is expected to slow down a bit as the result of a wane in user demand.

Retail Real Estate

2016 was not a good year for retail and it looks like 2017 will continue to get worse. Brick-and-mortar stores are closing and consolidating while e-commerce proves to be the way of the future. Online sales are expected to increase by 15.5% (to 9.2%) this year. On a brighter note, Class A malls are expected to maintain or increase their rents per square foot, as they have for the past five years. Also, experts predict that mixed-use lifestyle developments will be a possible solution for brick-and-mortar locations to compete with e-commerce. Finally, community strip centers are expected to grow by 1.7% in 2017.

Hotel Real Estate

In 2017 we expect to see a healthy labor market and wage growth which will ultimately benefit hotel real estate through an increase in leisure and business travel. However, major competitors to the hotel market, such as Airbnb and similar home-sharing businesses will continue to thrive. This is expected to steal sales from hotels as the concept of home-sharing becomes more mainstream and robust.

Multifamily Real Estate

Overall, experts are optimistic for the multifamily real estate market in 2017, but that’s not without a few key challenges. An increase in supply this year will drive up vacancy rates and impact rental rates as a result. Interestingly, it’s the high-end apartments that will experience the most shrinking rents, while Class B and Class C apartments will be less impacted. This is the first time since the Great Recession that supply outpaced demand, as it did in 2016. It’s expected to continue into 2017 which leaves some major hurdles to face moving forward.

What sector of commercial real estate do you think will be the most changed in 2017? Share your insights by leaving a comment!

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The 12 Days of Christmas in Central PA’s Commercial Real Estate

Posted on December 13, 2016 by Mike Kushner in Blog, Commercial Real Estate, Local Market No Comments

The 12 Days of Christmas in Central PA’s Commercial Real Estate

We’re all familiar with the classic holiday song, “The 12 Days of Christmas.” But did you know that each of the 12 presents also relates to something currently taking place in Central Pennsylvania’s commercial real estate market?

With a little creativity, we’ve found these fun facts that you likely didn’t know about our local real estate market. We’re willing to bet that the next time you hear this song, you’ll associate turtle doves and gold rings with something more than Christmas gifts. Take a look!

Partridge in a Pear Tree: Pennsylvania farmers of specialty crops will benefit from nearly $925,000 in federal grants dedicated to research, education and marketing to help strengthen the industry. This grant may not call out pear trees per se, but it does include the National Peach Council and the Pennsylvania Apple Marketing and Research Program.

2 Turtle Doves: After eight years without a direct flight to the state’s capital, “turtle doves” flying from Pittsburgh are finally able to get a nonstop ticket to Harrisburg, fixing a big missing link between the two cities. Beginning in October, Southern Airways Express began offering three daily flights to Harrisburg on weekdays and one each weekend day in an effort to position themselves as “Pennsylvania’s airline.”

3 French Hens: Suez, a French-based multinational corporation, is the second largest supplier of water to U.S towns and cities. Suez provides services to many Central PA communities. In November, Suez opened a new advanced water treatment plant that deploys innovative and highly-effective water treatment processes in Bloomsburg, PA.

4 Calling Birds: Comcast has laid 50 miles of fiber-optic transmission lines throughout Center City Philadelphia and University City. This $30 million project will provide companies on commercial corridors, such as Market Street, with superfast data speeds. It extends the Comcast backbone network to 3,000 Philadelphia businesses and big institutions, among them the University of Pennsylvania and the Thomas Jefferson University Hospitals complex.

5 Gold Rings: The Olympics are contributing to our economic growth right here in Central Pennsylvania. Spooky Nook, home of the Olympic Women’s Field Hockey Team, is having a strong economic impact on the local community that extends beyond Lancaster County. More than 450 new jobs have been created with the opening of the facility in 2015. Through partnerships with over 65 regional hotel properties, the business has contributed more than 60,000 room nights within a 50 mile radius of the location in 2014.

6 Geese a-Laying: We’ve taken a little creative liberty here by replacing geese for a crane, but it’s a pretty interesting fact nonetheless! Philadelphia has an interactive “Crane Watch” website where you can see all of the city’s commercial real estate projects in progress.

7 Swans a-Swimming: A proposed Aquatic Center in Derry Township could be another catalyst for local economic growth. The facility could host large swimming competitions and would also include therapy pools for health and wellness partners as well as a recreational pool.

8 Maids a-Milking: Pennsylvania is still the 5th largest U.S. milk producing state, but may not continue to hold this position for long. An overall decline in fluid milk sales has caused more milk to be used to produce other dairy items such as yogurt. Additionally, Pennsylvania’s rolling herd average is the lowest of its closest competing states.

9 Ladies Dancing: When it comes to Central Pennsylvania’s nightlife, it appears that the ladies prefer to “dance” on the West Shore. Several restaurants that have locations in downtown Harrisburg have opened second locations on the West Shore, including Cork and Fork, Duke’s, Gilligan’s and Federal Taphouse. While many people hope that this will encourage more people to venture into downtown Harrisburg for even more dining options, it remains evident that crossing shores is just too far to travel for some.

10 Lords a-Leaping: Central Pennsylvania landlords are having a banner year as vacancies are down and rental rates are up. With more single families looking to rent a home over purchasing one, rents have been rising all across the board – which is all the more reason these landlords are a-leaping!

11 Pipers Piping: Natural gas pipeline companies and residents continue to clash on the issue of pipeline safety and gaps in regulation and oversight. The natural gas industry has the potentially to significantly impact the local economy. The Panda Patriot plant alone will contribute an estimated $5.85 billion to the area’s economy, with thousands of jobs created during its construction.

12 Drummers Drumming: 2017 should bring higher wages for a broad range of workers. In 2016, CA, NY, and D.C., passed new laws that would raise the minimum wage to $15 per hour. PA remained consistent with the federal minimum wage at $7.25 per hour; however, there were 15 minimum wage bills in the 2016 legislative session that indicate legislators are “drumming up” momentum to make a change to our state’s minimum wage.

Which of the 12 Days of Christmas in commercial real estate did you find most interesting? Or do you have another suggestion to offer? Share your ideas by commenting below!

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Central PA’s Office Market Sets Recent Records for Vacancy, RBA and Rental Rates!

Posted on October 19, 2016 by Mike Kushner in Blog, Local Market, Trends No Comments

At first glance, it didn’t appear like Q3 2016 held any exciting news for Central Pennsylvania’s office real estate market. No top sales, no major projects delivered and only a couple projects under construction. But as we dug a little deeper into the numbers, we found that this quarter claimed recent record highs for RBA and quoted rental rates, as well as a record low for vacancy rate.

Together, these trends tell us that good things are happening within the local office real estate market, with numbers that continue to indicate growing demand. Let’s take a closer look at the highlights from Q3 2016 which we can use to analyze the current market and predict future trends.

Select Year-to-Date Deliveries:

CoStar’s list of Select Year-to-Date Deliveries includes two properties in Central Pennsylvania. Though none of these were delivered in Q3, it’s worth recapping that activity that has taken place so far in 2016. The Sterling Place Corporate Center in Mechanicsburg was delivered in Q2 with 129,000 square-feet of fully leased space. At 440 Walker Road, Chambersburg, 9,199 square-feet of space was delivered in Q1. Only 63% was preleased.

Top Under-Construction Properties:

Although no new properties were delivered in Q3, we expect to see at least one new office building delivered to the Central PA market in Q4. This property, located on Hogestown Road in Mechanicsburg, will add 129,000 square-feet of office space. It is 100% preleased.

Absorption and Demand:

Net absorption dropped this quarter by 70,917 square-feet. There has been a lot of fluctuation in net absorption from quarter to quarter and this continues in line with the trend. Total RBA did not budge from last quarter which was 54,902,624 square-feet. This maintains the recent record high that we reached in Q2, the highest RBA in Central PA since prior to Q4 2012.

Vacancy & Rental Rate:

Vacancy decreased again this quarter to a recent record low of 6.0%. This is the lowest vacancy rate we have experienced since prior to Q4 2012. As might be expected with a decrease in vacancy, we also experienced an increase in the quoted rental rate. Now at $17.30 per square-foot, this is $0.04 higher than last quarter and only $0.03 less than the recent record high of $17.33 we saw in Q1 2016.

Our Summary/Analysis:

All in all, Q3 brought positive news for Central Pennsylvania’s office real estate market. An increase in demand for space is driving down vacancy and driving up the price per square foot. New properties are at least 50%, if not 100%, preleased before they even hit the market. With another 100% preleased property expected to be delivered next quarter, we predict that 2016 will have a strong finish, indicating a healthy and growing office market.

Based upon the data for Q3 2016, what do you find to be most interesting or important? Share your insight by commenting below!

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New Industrial Space Popping Up All Over Central PA While Vacancy and Rental Rates Increase

Posted on August 14, 2016 by Mike Kushner in Blog, Local Market, Trends No Comments

The Central Pennsylvania industrial real estate market is an active place to be right now! In second quarter 2016, three new properties were delivered with three more under construction. Most interestingly, none of this new space is preleased. Both vacancy and rental rates continue to rise to some of the highest numbers we have seen in recent quarters.

What do these trends tell us about the health of the industrial market and the local economy? Let’s take a closer look at the highlights from second quarter 2016.

Select Year-to-Date Deliveries:

The Lebanon Valley Distribution Center, located at 139 Fredericksburg Road, Fredericksburg was delivered this quarter with an RBA of 874,126 square-feet that is not preleased. Another Central Pennsylvania building delivered in second quarter 2016 is the property at 192 Kost Road, Carlisle. It has an RBA of 422,200 square-feet and is not preleased. Third, LogistiCenter 78-81 delivered another 405,000 square-feet of unleased space this quarter. Combined, this is 1,701,326 square feet of new, unleased industrial space delivered in second quarter 2016.

Top Under-Construction Properties:

In addition to the buildings delivered to the market this quarter, there are three more under-construction properties in Central Pennsylvania that will be delivered in the coming year. The Eden Road Logistics Center will be delivered in fourth quarter 2016. It has an RBA of 754,881 square-feet and is 0% preleased. Trade Center 44 is also expected to deliver in fourth quarter 2016. This property has an RBA of 620,000 square-feet and is 0% preleased. Finally, Crossroads Logistic Center is expected to deliver in first quarter 2017 with an RBA of 398,250 square-feet. It is also 0% preleased.

Select Top Sales:

Three of the nine Select Top Sales between April 2015 and June 2016 took place in Central Pennsylvania. Coming in at number one on the list is Park 81 in Shippensburg. This 1,495,720 square-foot facility sold for $83,000,000 to CBRE Global Investors, LTD. Number five on the list is 100 Louis Parkway in Carlisle. This 400,596 square-foot facility sold for $28,850,000 to Industrial Property Trust. The final Central Pennsylvania property on the list, ranking number seven, is located at 1225 S. Market Street, Mechanicsburg. With 596,703 square-feet, this property sold for $21,350,000 to Allen Distribution.

Absorption and Demand:

Net absorption once again dropped this quarter to 69,303 square-feet. If this trend does not soon reverse, we are inching our way closer to a negative net absorption that we have not seen since second quarter 2013. Net absorption has been declining each quarter since reaching a peak of 2,382,561 square-feet in second quarter 2015. Though this quarter was not the drastic decrease we have seen in most recent quarters, it is still contributing to the downward trend.

Vacancy:

Vacancy has increased this quarter, rising to 6.0%. This is the highest vacancy rate we have seen since second quarter 2014. After reaching a low of 4.5% in second quarter 2015, vacancy has continued to rise steadily.

Rental Rate:

The quoted rental rate is also on the rise. Second quarter 2016 ended with a rate of $4.30 per square foot. This is the highest rate we have seen since prior to third quarter 2012. It was only midway through 2015 when we saw this rate exceed $4.00 and it has been steadily rising ever since.

Our Summary/Analysis:

With so much new, unleased space entering the Central Pennsylvania industrial real estate market right now, it’s obvious why net absorption continues to decrease. By first quarter 2017, another three new, unleased buildings will be completed which leads us to predict that a negative net absorption in in our not too distant future. Following this trend, vacancy rates will continue to rise as well.

Where it gets interesting is even with all of this new, unleased space and vacancy rates on the rise, second quarter 2016 experienced the highest quoted rental rate we have seen in recent years. What this tell us is that the demand for industrial space in Central Pennsylvania continues to outpace supply.

In a recent Central Penn Business Journal article, many experts weigh in on the thriving industrial market. The consensus? We will continue to see growth, especially with retailers’ increased emphasis on faster home deliveries. To accomplish one-day deliveries, for example, this calls for more facilities in closer proximity. The demand may not necessarily be for larger warehouses, but for more warehouses placed in prime locations. And Central Pennsylvania is a prime location for warehousing and distribution, indeed!

What additional impact do you think all of this new industrial space will have on the Central Pennsylvania market? Share your insight by commenting below!

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Central PA Retail Market Reacts to 7 New Buildings Delivered in First Quarter 2016

Posted on June 27, 2016 by Mike Kushner in Blog, Local Market, Trends No Comments

2016 has already proven to be an interesting year for Central Pennsylvania’s retail real estate market. A total of seven new buildings were delivered this quarter alone with a combined RBA of nearly 150,000 square-feet of space – only some of which is occupied. As a result, this new space has impacted vacancy and rental rates as well as net absorption. Here is a more detailed look at some of the highlights from Q1 2016 for Central Pennsylvania retail.

Select Year-to-Date Deliveries:

Seven new buildings were delivered to the Central Pennsylvania retail market in Q1 2016. Six of these properties made it to CoStar’s list of the Philadelphia Market’s Top 15 Select Year-to-Date Deliveries. They are as follows:

Number 2 on CoStar’s list is the building at I-81 and Walker Road with an RBA of 109,237 square-feet that is 12% occupied.
Number 7 on CoStar’s list is the building at 968 Norland Avenue with an RBA of 10,500 square-feet that is 71% occupied.
Number 10 on CoStar’s list is the building at Cedar Crest Crossing with an RBA of 7,310 square-feet that is 100% occupied.
Number 11 on CoStar’s list is the building at 2101 Strickler Road with an RBA of 7,043 square-feet that is 0% occupied.
Number 13 on CoStar’s list is the building at Donegal Square with an RBA of 6,108 square-feet that is 0% occupied.
Number 15 on CoStar’s list is the Chik-Fil-A located at Chambersburg Square with an RBA of 5,000 square-feet that is 100% occupied.

Absorption and Demand:

After hitting a low of negative 152,049 square-feet in first quarter 2015, net absorption has been on a steady climb. However, this trend came to an end this quarter with a significant decrease in net absorption, dropping from 281,270 square-feet (Q4 2015) to 105,984 square-feet (Q1 2016). The seven new buildings, with a combined RBA of 149,898 square-feet, most certainly had an impact on the market’s ability to absorb the new space. It’s also worth noting that Central Pennsylvania comes in second, only behind suburban Philadelphia, in year-to-date net absorption and deliveries.

Vacancy:

This quarter the vacancy rate barely budged, increasing from 4.8% to 4.9%. What’s worth noting is that this is one of the very few times we have seen the rate increase during a nearly four-year-long trend of decreasing rates. After hitting a high of 6.0% in the latter part of 2012, rates hit their lowest number last quarter at 4.8%. Could this quarter’s increase be the start of an ongoing trend of increasing rates? The seven new buildings delivered to the market this quarter would indicate yes, which brings us to our next area of focus.

Rental Rates:

Lastly, the quoted rental rates have increased by $0.05, from $11.83 last quarter to $11.88 this quarter, returning them nearly to where they were in Q3 2015. Over the past four years, Central Pennsylvania’s rental rates for retail space have increased and decreased without much consistency. It will be interesting to watch these numbers throughout the rest of the year.

Our Summary/Analysis:

With nearly 150,000 square-feet of new retail space dumped into the market this quarter, Central Pennsylvania has responded to these changes well – all things considered. The vacancy rate moved just ever so slightly and rental rates actually increased, proving the market has a demand for this new space. Further proof is that Central Pennsylvania ranks second to suburban Philadelphia in year-to-date net absorption and deliveries. We should keep a keen eye on how the new construction will continue to impact our local businesses and economy as there is sure to be additional movement and emerging trends!

What trend this quarter do you find most noteworthy? Share your thoughts by commenting below!

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Central Pennsylvania’s Largest Retail, Industrial and Office Lease Deals in 2015

Posted on March 23, 2016 by Mike Kushner in Blog, CPBJ Articles, Local Market, Trends No Comments

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

The New Year is well under way, but before we get too far into 2016, it’s worth taking a look back at the largest commercial lease deals that occurred in the Central Pennsylvania market in 2015. These deals represent significant trends and help predict where the market may be headed in future quarters.

Each sector within the commercial real estate market – retail, office and industrial – experienced a unique trend worth noting. Without further ado, let’s take a closer look at the largest lease deals that occurred in Dauphin, Cumberland, York, Lancaster and Lebanon counties for the retail, office, and industrial markets in 2015.

Largest Retail Lease Deals

1. Community Aid leased the first floor of a Class B retail space located at 25-31 Rohrerstown Road, Lancaster from Urban Edge Properties. The 40,712 square-foot lease was signed in January 2015 and began in June 2015.