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How Central PA’s Growing Population Impacts Local Businesses

Posted on October 25, 2019 by Mike Kushner in Blog, Local Market, Trends No Comments

According to a 2018 report from the Pennsylvania Data Center, Pennsylvania’s population is expected to grow approximately 1% from the 2010 to the 2020 population, which is 1% better than no growth or a loss. What’s even more remarkable, is Pennsylvania’s growth is focused in about 16 counties, 14 of which are in Pennsylvania’s South Central Region, South East Region and Lehigh Valley, including Pennsylvania’s fastest growing county population in our own Cumberland County, here in South Central PA.

Furthermore, estimated population growth in those 14 counties is about 3.8%, which is driving Pennsylvania’s overall modest population growth, while counties in Pennsylvania’s West and Northern Tier are losing population with only Butler and Centre Counties showing expected population growth.

All of this data raises a very important question…

How does Central Pennsylvania’s changing population stand to impact the economic development of our local businesses?

To help answer this, we asked David Black, President and CEO of the Harrisburg Regional Chamber and CREDC, to weigh in from his perspective and the changes he is seeing taking place in Central Pennsylvania. Here is what he shared.

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Focusing on South Central Pennsylvania, which includes Adams, Cumberland, Dauphin, Franklin, Lancaster, Lebanon, Perry and York, it’s pretty good news for us. Population growth drives demands for products, services and community amenities – quality of life factors. The quality of life factors – everything from good restaurants, entertainment, quality public education, exceptional health care, transportation access and cost of living – are in part driven by more people paying more taxes and needing more services that feed into our positive economic cycle.

Given our region’s transportation advantage via highways, rail and air and other amenities, South Central Pennsylvania is a great place to live, raise a family and have fun, plus we are close enough that if large metros like Washington, Baltimore, Philadelphia or New York is your thing, just a few hours will get you there. Quality of life issues help to attract and retain workforce, which is the business community’s number one issue these days, due largely to the fact that 10,000 baby boomers nationwide are retiring each and every day, leaving workforce challenges in many industries.

People want to live in vibrant communities. Some people prefer urban lifestyles, some are suburbanites while still others prefer the more natural rural lifestyles. Guess what? South Central Pennsylvania has it all. You can live on your 10 acres in Perry County and be to work in 30 minutes in downtown Harrisburg or walk to your job in center city Harrisburg from your apartment downtown, or your own home in Midtown, or commute 10 or 15 minutes from your suburban community to your job.

Population growth helps to drive business growth, it helps to drive additional growth in our region. While we think of ourselves as Harrisburg or Lancaster or York, commuting patterns show us that people commute from county to county to work because they can. I have a theory, with no disrespect to Lebanon County, that everyone in the Palmyra area actually works in Dauphin County at someplace with Hershey in the name! Businesses provide jobs, but people with the ability to spend drive local economies while our strategic location and transportation advantage help to connect us to the global economy and make South Central Pennsylvania such a special place to call home.

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To offer additional insight, specifically on working age population growth in Pennsylvania, we asked Ben Atwood of CoStar, a national commercial real estate research firm.

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One of Costar’s recent articles entitled “Latest Census Data Shows Lehigh Valley Leading Pennsylvania in Working-Age Population Growth” stated that the latest data from the Census Bureau shows Pennsylvania continues struggling to lure in new industries and working age residents. The U.S. population aged 20-64 increased by 0.25% last year, but of Pennsylvania’s 67 counties, only seven surpassed this growth rate and 55 experienced net declines.

Harrisburg and its satellite markets are pretty underdeveloped (excepting Lancaster), relatively speaking. And the lack of modern office supply and relatively stagnant population growth means there likely won’t be major companies relocating into the area. Right now, that capital investment would have to be largely local, and how much are people locally willing to risk?

Central PA is in the position to grow in ways other areas in the state aren’t, but that doesn’t mean that growth will be rapid, or even guaranteed. The new developments will be riskier, hampering investor interest. This combined with stagnant, even waning growth in working age population can be cause for concern both near and long-term.

To some extent, the optimism about population growth is misplaced because it could just mean these areas will have a slightly easier go of it over the next few decades, as automation continues to eat away at blue collar jobs in retail, shipping, and professional services in the Commonwealth’s smaller markets.

Things change and evolve, and no one can predict the future, but a lot of growth in these areas is in transportation and manufacturing, industries with long term automation risks, and there’s plenty of reasons to believe automation will expand into white collar employment in the near future.

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Omni Realty Group is very grateful for David and Ben’s expertise and input. It’s fascinating, yet not surprising that population growth can have such a profound impact on quite literally everything else. Here in Central Pennsylvania we have a valuable opportunity to harness this growth and use it to fuel our economy. This further emphasizes the point that there are many unique benefits to live, work, and play in this region. Whether you call Central Pennsylvania home, are employed in the region, or simply enjoy visiting to experience its social offerings, you are playing an important role in the growth of our economy.

How else do you feel that our region’s changing population stands to impact local businesses? Join in the conversation by leaving a comment below.

[Online Resources] Real Estate, analysis, ben atwood, blog, business, carlisle, census, central pa, central pennsylvania, Commercial Real Estate, costar, CRE, data, david black, development, Economy, growth, guest blogger, harrisburg, Harrisburg regional chamber, hershey, lancaster, local, market report, Omni Realty Group, pennsylvania, population, real estate broker, regional, tenant representative, trends, york

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

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

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

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

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

Interest rates are still historically low.

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

Unemployment hit a 49-year low.

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

Demand for industrial space remains strong.

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

Sales of multifamily real estate hits record high.

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

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

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

New industries are expanding their commercial real estate.

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

Gratitude…and Caution

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

[Online Resources] Real Estate, 2018, central pa, central pennsylvania, challenges, changes, chris lebarton, Commercial Real Estate, costar, east, gettysburg, harrisburg, lancaster, market report, Mike Kushner, Omni Realty, pennsylvania, retail, retailers, trends, west, york

17 New Retail Buildings Under Construction in Central PA

Posted on September 18, 2017 by Mike Kushner in Blog, Local Market, Trends No Comments

Cost of retail space in Central Pennsylvania continues to climb despite negative absorption and rising vacancy.

If you’ve been paying attention you know that traditional retail space is undergoing a major shift in how and where it’s being used. Many stores have closed their doors and/or have embraced the growth of ecommerce over brick-and-mortar locations.

In Central Pennsylvania, we’re seeing quite a few interesting trends that indicate more change is yet to come. Net absorption plummets further into the negative with just 3 new buildings delivered this quarter. A total of 17 new buildings are under construction which begs the question of how the market will respond when 423,994 square-feet of new space is delivered in the coming months. Though vacancy rate is on the rise, so is the quoted rental rate.

How do these trends tie together and what do they tell us about the future of retail real estate in Central Pennsylvania? Let’s take a closer look.

SELECT TOP UNDER CONSTRUCTION PROPERTIES

Coming in at number five on CoStar’s list of Select Top Under Construction Properties is the Gateway Hanover Shopping Center on Wilson Avenue in Hanover. The 136,193 square-foot Target is expected to be completed in Q3 2017. Number seven on the list is the Crossings at Conestoga Creek in Lancaster. This mixed-use project, anchored by Wegmans, will deliver 90,000 square-feet of unleased retail space in Q4 2018. Coming in at number 14 on the list is the Shoppes on South Queen located at 1701 S. Queen Street in York. The 55,000 square-feet of space, which will be delivered in Q4 2017, is 53% preleased.

SELECT TOP LEASES

Among CoStar’s list of Select Top Leases for Q2, one Central Pennsylvania lease made it to the top 10. Red Rose Commons in Lancaster County leased 43,091 square-feet of retail space to Burlington Coat Factory.

ABSORPTION

Net absorption, which was already in the red from Q1, fell even lower this quarter to negative 268,916 square-feet. This is the greatest square footage of space to be negatively absorbed in any one quarter since Q3 2013. It is also only the fourth time the market has experienced a negative net absorption in four years. Three new retail buildings were delivered this quarter totaling just 43,825 square-feet; however, 17 additional building are under construction with a total of 423,994 square-feet of new space that will be dumped into the market in the coming months.

VACANCY & RENTAL RATES

Vacancy rates raised ever so slightly this quarter, from 4.0% to 4.4%. Even with a negative net absorption and increasing vacancy rates, the quoted rental rate rose in Q2 from $13.10 to $13.58 per square foot. This is a recent record high for vacancy rates that have been almost consistently decreasing since 2013.

What we can learn from the market’s performance in Q2 is that, while retail space nationwide has taken a major blow over the last few years, it’s still in demand. The shift toward ecommerce has changed the landscape of retail real estate, but it has not made it completely irrelevant. New buildings are under construction, retailers are moving into new space and the rising cost per square foot demonstrates the demand exists.

Over the coming months and years, it will be important to watch how retailers strategically place their brick-and-mortar locations and how they rebuild their business model to harness the popularity of ecommerce. The business that will thrive in this new landscape will be ones who embrace change and listen to consumer demand.

What trend in Central Pennsylvania’s retail market do you think will have the largest impact? Share your insight and join in the conversation by leaving a comment below!

Learn more from past market reports:

Amidst Massive Retail Closings, Central PA Commercial Real Estate Continues to Grow

Central PA Experiences Highest Number of Retail Store Closings Since Recession

6 Things Disrupting Commercial Real Estate in 2017

[Online Resources] Real Estate, absorption, blog, central pennsylvania, Commercial Real Estate, costar, CRE, facts, harrisburg, lancaster, market report, Mike Kushner, mixed use, Omni Realty Group, pennsylvania, q2, rental rates, retail, retail real estate, retail space, statistics, stores, top leases, top sales, trends, under construction, vacancy, york

Central Pennsylvania Industrial Real Estate Report for Q1 2017

Posted on April 20, 2017 by Mike Kushner in Blog, Commercial Real Estate, Local Market, Trends No Comments

Region gains more than two million square feet of new industrial space in first quarter

2017 is on track to becoming one of the best years yet for industrial real estate in Central Pennsylvania – and we’ve only just wrapped up the first quarter! The market absorbed more than 2 million square feet of new space, while increasing net absorption and holding on to the highest rental rate per square foot that we’ve had in over four years. The vacancy rate also holds steady at 5.5%, even with an increase in vacant space.

The market almost can’t get its hands on space fast enough. Five of the six buildings delivered this quarter made it to CoStar’s Top 10 list. Additionally, nine new buildings are under construction and will deliver yet another 4,410,916 square feet of new space.

To see the full impact of the growth taking place in Central Pennsylvania’s industrial real estate market, take a look at the highlights from Q1 2017.

SELECT YEAR-TO-DATE DELIVERIES

Within the first quarter of 2017, Central Pennsylvania received six new industrial properties, totaling a combined 2,244,371 square feet of space. Five of these made it to CoStar’s list of Select Year-to-Date Deliveries. The first and largest is the Eden Road Logistics Center in York with 754,881 square feet of space. Next, Carlisle Distribution Center – Building 5 delivered 582,000 square feet of space. The Crossroads Logistics Center in Jonestown delivered 398,250 square feet of space. The property at 51 Commerce Drive – Building 1 in Reading delivered 339,200 square feet of space. And the property at 1451 Stoneridge Drive in Middletown contributed an additional 10,200 square feet of space.

SELECT TOP UNDER CONSTRUCTION PROPERTIES

If six new properties delivering in the Q1 wasn’t enough to prove the rapid growth of industrial real estate in Central Pennsylvania, there are yet nine more properties under construction, four of which made it to CoStar’s list of Select Top Under Construction Properties. A 1.1 million square-foot property located at 100 Fry Drive, Mechanicsburg is expected to deliver in Q3. A 1,002,000 square-foot property located at 575 Old Forge Road, Jonestown is also expected to deliver in Q3. The Goodman Logistic Center Carlisle – Building 2 will deliver 938,828 square feet of space in Q2. Finally, Orchard Business Park II – Building A will deliver 780,000 square feet of space in Q4.

SELECT TOP SALES

Among the year’s select top sales, are three worth noting that took place in Central Pennsylvania. The Ames True Temper building in Carlisle (1,226,525 square feet) sold for $90,150,000 to Clarion Partners. Target Distribution Center in York (785,400 square feet) sold for $60,000,000 to AEW Capital Management. And the building at 100 Louis Parkway in Carlisle (400,596 square feet) sold for $28,850,000 to Industrial Property Trust.

ABSORPTION

2017 is setting records all around for industrial real estate in Central Pennsylvania. Q1 boasts the largest number of buildings in existing inventory (3,635) and the largest total RBA (262,658,186 square feet) we have ever seen. In less than four years, the local market gained 45 new buildings, with nine more under construction. Even with all of this new inventory entering the market, net absorption continues to increase, proving the demand for more space. Net absorption this quarter rose from 992,800 square feet to 2,107,328 square feet. This is the highest net absorption we’ve seen since Q2 2015 and the third highest since it plummeted into the negatives in Q2 2013.

VACANCY & RENTAL RATES

Total vacant space increased from 14,255,260 square feet to 14,392,303 square feet this quarter. Even with this increase, the vacancy rate holds steady at 5.5%, where it’s been since Q2 2016. The quoted rental rate also remains steady at $4.36. This is the highest price per square foot we’ve seen prior to Q2 2013, again proving a healthy demand for industrial real estate in Central Pennsylvania!

What trend from the first quarter did you find most interesting or impactful to Central Pennsylvania industrial space? Share your insights by leaving a comment below.

Learn more from past market reports:

Central Pennsylvania CRE Market Reports Q4 2016

Predictions for Trends and Changes in Commercial Real Estate in 2017

Influx of New Construction Impacts Central PA’s Industrial Real Estate Market

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Central Pennsylvania’s Retail Real Estate Market Experiences Record-Setting Quarter

Posted on September 15, 2016 by Mike Kushner in Blog, Local Market, Trends No Comments

This quarter has posted some of the highest and lowest numbers we have seen since 2012. In Central Pennsylvania’s local retail real estate market, vacancy rate is low, rental rate is high and both net absorption and total RBA have increased. But overall, what does this tell us about the state of our economy and what we can expect in future quarters?

Let’s take a closer look at some of the record-setting numbers we experienced in Central Pennsylvania’s retail real estate market in 2016’s second quarter and what they mean to the health of the economy.

Select Year-to-Date Deliveries:

Coming in at number three on the list of select year-to-date deliveries is the retail property located at I-81 and Walker Road in Chambersburg. Phase I and II, delivered in Q1 2016, total 109,237 square-feet of space that is 92% leased (44,000 square-feet with 4,400 square-feet vacant). Some of the major tenants include Kohl’s, Target, Giant, Red Robin, Staples, PetSmart, Michael’s, Olive Garden, VisionWorks, ATT&T and many more. Palisades Development, LLC are currently processing LOIs for the remaining space. Phase III is planned and construction will proceed when leasing warrants.

At number 15 on CoStar’s list, is another Palisades Development, LCC retail property located at 968 Norland Avenue in Chambersburg. This 10,800 square-foot building is 100% occupied and was also delivered in Q1 2016.

Select Top Retail Leases:

On the list of Select Top Retail Leases, Harrisburg area east claimed the top spot. Listed at number one is the Harrisburg East Shopping Center with 69,954 square-feet of space. Although not listed by CoStar’s as a “Select Top Retail Lease” for this quarter, plans are in place for the Giant currently in Colonial Commons, to make a move 0.2 miles down Jonestown Road to the Harrisburg East Shopping Center into the retail space formerly occupied by Gander Mountain. This will provide more space for Giant and is already attracting additional retail businesses nearby including a CVS Pharmacy and potentially a fast-casual restaurant, reports KIMCO, owner of the shopping center.

Select Top Sales:

Only one of the nine Select Top Sales from April 2015-June 2016 is from the Central Pennsylvania submarket. The Shoppes at Susquehanna Marketplace sold for $44,000,000 to Clarion Partners. With an RBA of 110,365 square-feet, this came at a cost of $398.68 per square foot.

Additionally, the West Porte Center, listed by CoStar as a Select Top Retail Lease, is more accurately represented as a sale. PennDOT purchased 67,126 square-feet of land for a new Amtrak station in Middletown that is expected to be finished in 2018. This is estimated to be a $32 million project which will include features like a covered pedestrian bridge to provide direct access to Penn State Harrisburg’s campus.

Absorption and Demand:

Net absorption increased this quarter from 64,467 square-feet (in Q1) to 110,449 square-feet, currently. Total RBA also increased, though just slightly, from 88,822,714 square-feet (in Q1) to 88,854,312 square-feet, currently. Six buildings were delivered with a total RBA of 31,598 square-feet. Additionally, five buildings are under construction.

Vacancy:

This quarter, the vacancy rate decreased by 0.1% to 4.7%. This once again matches the vacancy rate of Q4 2015, which is the lowest rate the Central PA submarket has experienced since prior to Q3 2012.

Rental Rate:

The quoted rental rate increased this quarter by $0.11 to $12.00. This is the highest price per square-foot the local retail real estate market has experienced since prior to Q3 2012.

Our Summary/Analysis:

Q2 2016 provided to be an exciting and record-setting quarter for Central Pennsylvania’s retail real estate market. We experienced a recent record low for vacancy rate at 4.7% and a recent record high for quoted rental rate at $12.00 per square-foot. These two trends go hand in hand, so it’s no surprise they would correlate together.

Another positive indicator for the health of the retail real estate market is the increase in net absorption and total RBA. Though neither were record-setting per se, net absorption nearly doubled in a single quarter which is impressive in its own right. It’s safe to say that the market is growing in demand, increasing in price and is able to absorb the new buildings that have been delivered.

What trend do you think will have the greatest impact on the Central Pennsylvania retail market? 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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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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How Will New Office Space Construction in Central PA Impact the Market?

Posted on November 18, 2015 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.

business, building, paperwork and people concept - happy builder in hardhat with clipboard and pencil over group of builders at construction site

Photo Credit: Dollar Photo Club

2015 has brought a boost in office space construction to Central Pennsylvania and there is even more space to come! While this may be exciting news for businesses looking to expand into the local market, we need to watch this trend closely and cautiously because the potential impact may not be so favorable for landlords and sellers of commercial office space.

The good news is we have four projects under construction that will deliver more than 400,000 square-feet to the market within the coming year, with a majority of this space already preleased. However, this promising news for the market is tempered by the fact that many tenants will vacate other office space nearby to occupy these newly constructed office buildings.

Once delivered, this square footage will most certainly impact net absorption and vacancy rates in the Central Pennsylvania submarket. What can we do to prepare and attempt to reduce any negative impact? Let’s first take a look at what’s going on in the market and then analyze what will likely result from these trends.

Third Quarter 2015: Select Top Under Construction Properties

Currently four different commercial office properties are under construction in the Central Pennsylvania submarket. The Cornwall Health Center, located in Harrisburg Area East, broke ground in fourth quarter 2014 and is scheduled to be delivered in fourth quarter 2015. It has an RBA of 54,234 square-feet and is 100% preleased. The TecPort Business Campus – Building A broke ground this quarter and is scheduled to be delivered in third quarter 2016. It has an RBA of 7,590 square-feet. It is not preleased and its quoted rental rate is listed as negotiable.

Additionally, a Class A office space project is under construction at the intersection of Carlisle Pike and Hogestown Road. The two buildings that make up this project have a combined 259,000 square-feet of space are expected to be completed in spring 2016. Finally, there is Class B office space at 1250 Camp Hill Bypass that is under construction. Its 82,000 square-feet of space is 100% preleased.

Third Quarter 2015 Rental Rates & Vacancy

This quarter, rental rates rose to $17.14 per square-foot. This is the highest rate we have seen since prior to 2011. The vacancy rate decreased from 7.8% to 7.5%. The vacant square-footage also decreased from 4,120,331 square-feet to 3,962,599 square-feet.

Third Quarter 2015 Absorption and Demand

The total RBA in Q3 2015 increased to 52,581,663 square-feet. Net absorption also experienced a substantial increase, more than tripling last quarter’s 50,466 square-feet to the 190,232 square-feet that closed out third quarter 2015. But take note, both net absorption and vacancy rates will soon be greatly impacted by the 400,000+ square-feet that will be delivered to the market in the next year!

Future Trends and Their Impact

New construction certainly has its benefits, and for the time being, the Central Pennsylvania office submarket is receiving a positive boost from the activity. But as this new square-footage is delivered in the next 12 months, causing businesses to vacate other space within the region, we can expect to see some new trends emerge.

Let’s take a look at a highlight of predictions we expect to see in the coming quarters:

Inconsistent Net Absorption: The only real pattern in net absorption of office space over the last 15 quarters has been inconsistency. Year-to-date for 2015 we are at 630,738 square-feet; 2014 totaled negative 311,827 square-feet; 2013 was 909,658 square-feet; and 2012 was negative 226,424 square-feet.
Increased Vacancy Rate: The addition of 340,000 square-feet of new construction in the Harrisburg West market that is being occupied by Hewlett-Packard (HP) and Deloitte will result in an increased vacancy rate in 2016 due to the occupants relocating from existing space. In addition, the Walgreens- Rite Aid merger will contribute to the market’s increased vacant space as the two companies integrate corporate back-office functions.
Decreased Employee Square-Footage: Square-feet per employee have been in a long term decline and will continue on this trend. E-commerce, telecommuting, and the desire for open and collaborative work spaces are squeezing the office space sector given that square footage per office employee is diminishing.
Increased Demand for Medical Office Space: The one bright spot in the office market segment is the increasing demand for medical office space. Orthopedic Associates of Lancaster is constructing a 73,529 square foot facility in North Cornwall Township. Good Samaritan Hospital is opening a new 22,000 square foot center at 840 Tuck Street in Lebanon. And Pinnacle Health is opening an 80,000 square foot Advanced Care Center in a former retail shopping center located at 1251 East Main Street in Annville.

These predictions are not going to be music to the ears of landlords and sellers, but this market provides some prime opportunities for new and growing businesses to expand within Central Pennsylvania. Increasing vacancy rates and inconsistent net absorption creates a competitive market in which the buyer or renter has the upper-hand. So businesses take note. If you were thinking of moving to or expanding within Central Pennsylvania, 2016 is the prime time to do so!

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

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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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