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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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High Rental Rates, Low Vacancy Define Central Pennsylvania Industrial Market

Posted on August 27, 2018 by Mike Kushner in Blog, Industrial, Local Market, Trends No Comments

Central PA’s submarket clusters for industrial real estate have some of the lowest vacancy rates and highest rental rates we have seen in recent years.

It’s the news that every commercial real estate developer and investor want to hear – the industrial real estate market in Central Pennsylvania ended Q2 2018 with some of the highest rental rates and lowest vacancy rates the market has experienced since 2014.

Now, it hasn’t been a steady climb over the last four years. Rather there’s been quite a bit of volatility in the market, with numbers bouncing up and down and up and down. However, it does appear that the extreme peaks and valleys have evened out and a more stable, yet steadily growing industrial real market has emerged in Central PA – at least for the present moment.

Let’s take a closer look at some of the most interesting trends and numbers reported from CoStar’s Q1 2018 report for Harrisburg/Carlisle, Lancaster and York/Hanover Submarket Clusters.

Harrisburg/Carlisle Submarket Cluster

Vacancy – The industrial vacancy rate for the Harrisburg/Carlisle Submarket Cluster fell significantly from Q1 2018 where it was previously 9.4% to its now 7.9%. This is the largest drop between a single quarter that the market has seen since prior to Q3 2014. In fact, starting with Q2 2017, the industrial vacancy rate for the Harrisburg/Carlisle Submarket Cluster has been quite volatile, swinging up and down by sometimes more than one percentage point in a quarter.

Absorption – The pattern of volatility in the Harrisburg/Carlisle Submarket Cluster continues with its net absorption. Though the market ended 2017 at a positive 2,692,866 square-feet, in Q1 2018 this dropped to a negative (2,132,086) square-feet, mostly due to a single building of 1,100,000 square-feet that was delivered that same quarter. Now in Q2 2018, net absorption is back in the positive at 1,385,445 square-feet with no new buildings delivered this quarter.

Rental Rates – The average quoted asking rental rate for available industrial space is $4.98. This has been steadily increasing ever since it experienced a drop in Q2 2017 where it dropped from $4.61 to $4.46 in one quarter. Now at almost $5.00 per square foot of space, the Harrisburg/Carlisle Submarket Cluster’s rental rates for industrial space is the highest it has been since prior to Q3 2014.

Inventory – As mentioned above, no new buildings were delivered this quarter, or in all of 2018. Three buildings are currently under construction, totaling 2,951,468 square-feet of new space. It’s estimated that these properties will not be delivered until early 2019.

Lancaster Submarket Cluster

Vacancy – The vacancy rate for the Lancaster Submarket Cluster in Q2 2018 held steady at 1.9%, the same as it was in Q1 2018. In fact, it has changed minimally from the 2.0% that Q4 2017 ended with. Previous to these last three quarters, there has been a lot more change from quarter to quarter in the Lancaster Submarket Cluster’s vacancy rate. To be this low, and this consistent for three quarters indicates a stable market with supply and demand near evenly matched.

Absorption – As for net absorption, Q2 2018 ended with a positive 2,723 square-feet. This is a drop of 127,888 square feet from Q1’s net absorption of 130,611 square-feet. After experiencing two quarters of negative net absorption in Q2 and Q3 2017, and rebounding to positive 354,056 square-feet in Q4, this is now the third quarter that net absorption has continued to drop, though still a positive number – for now.

Rental Rates – The quoted asking rental rate for available industrial space in the Lancaster Submarket Cluster took a hit this quarter when it dropped from $4.74 to $4.57 per square foot. The trend in rental rates have been up and down and up and down over the course of the last four years. While it peaked at $5.15 per square foot in Q4 2016, it has never been able to return to that high and is now trending downward, inching closer to the numbers we saw in early 2015.

Inventory – One new building was delivered this quarter, adding 35,768 square-feet of new space to the industrial market. There are no other buildings currently under construction in the Lancaster Submarket Cluster.

York/Hanover Submarket Cluster

Vacancy – The industrial vacancy rate for the York/Hanover Submarket Cluster dipped ever so slightly this quarter from 4.4% in Q1 2018 to its current 4.3%. This is the lowest vacancy has been in over a year when it was also 4.3% in Q1 2017. From that point, the vacancy rate was on the rise, peaking at 5.0% in Q4 2017, then dropping 0.6% points to 4.4% in Q1 2018.

Absorption – Q2 2018 ended with a net absorption of 125,766 square-feet. Looking at Q1’s net absorption of 396,112 square-feet, this is a drop of 270,345 square-feet in a single quarter. Between these two quarters only one new building of 30,000 square feet was delivered to the market.

Rental Rates – The Lancaster Submarket Cluster ended Q2 2018 with a quoted asking rental rate of $4.28. This is $0.14 higher than it was in Q1 and $0.22 higher than in Q4 2017. In fact, this is the highest rental rate this submarket cluster has seen since prior to Q3 2014 with it near steadily rising during that entire period.

Inventory – Only one new building was delivered in Q2 2018 and that added 30,000 square-feet of industrial space to the market. There are currently no new buildings under construction at this time.

Key Takeaways

Given all the activity taking place in the various Central PA submarket clusters, there are particular insights that are important to note. First, we can expect vacancies to remain at record lows for the remainder of 2018, despite a further uptick in new construction. Additionally, E-commerce sales grew 15.2% in Q2 2018, compared with the same time last year and now represent 9% of total sales. E-commerce will continue to be a driving force in the foreseeable future.

While indicators point to strong demand, there are headwinds increasing from labor shortages and tariffs. With the economy at or near full employment, site selection decisions and supply chain nodes may be driven out to secondary and tertiary markets. Finally, it is too early to predict the exact impact of tariffs on the industrial market, but we can look for potential declines in import and export levels.

Looking at the comparison of the three Central Pennsylvania submarket clusters, which do you feel has the strongest industrial real estate market right now? What changes do you anticipate taking place throughout the rest of 2018?

Share your ideas by leaving a comment below!

[Online Resources] Real Estate, absorption, central pa, Commercial Real Estate, costar, data, developer, industrial, inventory, investor, manufacturing, market, Mike Kushner, Omni Realty Group, pennsylvania, rental rates, report, space, statistic, trends, warehouse

Mega Warehouse Space Exploding in Central PA

Posted on December 4, 2017 by Mike Kushner in Blog, Local Market, Trends No Comments

Central Pennsylvania has gained 8 warehouses, each over 1 million square-feet, since 2010.

With today’s booming e-commerce market continuing to expand, the need for sufficient storage space to meet online consumer demands is at an all-time high. To keep pace with online consumer needs, retailers look towards extra-large storage warehouses exceeding 1 million square feet, also known as “Mega Warehouses.” These warehouses are a way to keep an edge over the competition. Between 2010 and 2017, 21 of these mega warehouses were constructed in the Philadelphia Submarket which includes Central PA.

As people continue to prefer ordering goods online with a click of a button or a tap via smartphone applications, over the traditional brick and mortar storefronts, the need for these mega warehouses continues to grow. Mega warehouses around the U.S. are strategically placed outside large metro areas allowing them to benefit from the abundance of space. By maintaining access to road, sea and rail transportation channels, mega warehouses do not sacrifice their ability to directly deliver goods to consumers in a timely manner.

Top 5 Largest Warehouses in Central PA Since 2010

# 1: At the top of the list is the warehouse occupied by Georgia Pacific. Located at 234 Walnut Bottom Road, Shippensburg, the property is 1,495,700 square-feet. CBRE Global Investors purchased this property from Prologis in 2015 for $83,000,000.

# 2: Unilever PLC, the company behind brands Dove, Lipton, Ben and Jerrys and many more, occupies 1,370,052 square-feet at 954 Centerville Road, Building 3, Newville. In 2013, this building was awarded LEED certification by the U.S. Green Building Council.

# 3: Developed by Hillwood and sold to GLP in 2016, this property is located at 1605 Bartlett Drive, Manchester. Starbucks occupies the entire 1,209,000 square-foot building.

# 4: The Urban Outfitters Distribution Center located at 766 Brackbill Rd, Gap, is 1,200,000 square-feet. Completed in 2015, this property is owned by Urban Outfitters.

# 5: The Nordstrom Fulfillment Center is located at 30 Distribution Dr., Elizabethtown. This 1,142,000 square-foot facility was constructed in 2015 and is located in a designated foreign trade zone (FTZ).

Take a look at all 8 warehouse properties in Central PA that are over 1 million square-feet.

Right Here In Central PA, We Are The Hub Of All The Action!

Central Pennsylvania remains a premiere market for industrial space and it’s easy to see why. To businesses that rely upon the ease and affordability of shipping their products to make a living, Central Pennsylvania possesses four main components that drive the decision – a great roadway system, an abundant work force, relatively inexpensive and available raw land, and the ability to reach 70 to 80 percent of the U.S. population in 24 hours. Additionally, our government regulations on warehousing and distribution are comparatively easy and straightforward compared to other states or regions.

Currently, there is one mega warehouse under construction in Central PA. The Goodman Logistics Center located in Carlisle. The property is fully leased and will be occupied by Syncreon, a third-party logistics company, in early 2018. In addition, there are five proposed buildings in excess of 1 million square-feet.

Central Pennsylvania is well poised to harness the economic boost from the e-commerce boom. We have a unique opportunity to serve this industry that we can’t afford to miss!

Learn more from past market reports:

Central Pennsylvania Industrial Real Estate Report for Q2 2017

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

Central Pennsylvania Industrial Real Estate Report for Q1 2017

brick and mortar, central pennsylvania, Commercial Real Estate, Construction, distribution, ecommerce, Economy, industry, large, market, mega warehouse, Mike Kushner, news, Omni Realty, pennsylvania, report, shipping, space, square feet, top 5, transportation, trend, warehouse

Central Pennsylvania Office Real Estate Report for Q2 2017

Posted on August 14, 2017 by Mike Kushner in Blog, Commercial Real Estate, Local Market, Trends No Comments

Decrease in vacancy and recent record high for rental rates indicate a healthy demand for Central Pennsylvania Office Space.

Central Pennsylvania’s office real estate market should have very few concerns or complaints based upon its performance in Q2 2017. Three new office spaces were delivered this quarter, all of which are 100% preleased. As a result, net absorption continued to rise into the black by more than 50,000 square feet. Vacancy declined as did vacant square footage. Most noteworthy, the quoted rental rate jumped by $0.10 per square foot, making this quarter the highest quoted rental rate the market has seen since prior to Q3 2013!

In addition to these highlights, there is a lot more we can take away from the local office real estate market’s performance this last quarter. Here are the major actions that have taken place in Central Pennsylvania according to CoStar’s Q2 Office Statistics.

SELECT YEAR-TO-DATE DELIVERIES

Three new office spaces entered the market in Q2 2017 and they all made it to CoStar’s Select Top Year-to-Date Deliveries. The largest of the three is at 100 Millport Road in Lancaster. The 93,000 square-feet of B Class office space is 100% prelease. Next on the list for Central PA’s Q2 deliveries is the Goodville Mutual Expansion located in Lancaster. Goodville Mutual Casualty Company added on an additional 20,000 square-feet of Class B office space that is 100% prelease. Last but not least is the 13,000 square-foot Class B office space located at 40 Old Willow Mill Road in Mechanicsburg that is 100% preleased to Penn State Medical Group.

SELECT TOP LEASES

Of the Select Top Leases featured in the Q2 CoStar Office Market Report, just one lease from the Central Pennsylvania submarket made the list, but it did so at number 5. A large healthcare company, Centene leased the office space at 300 Corporate Center Drive, Harrisburg from Cushman & Wakefeld. The total space of the lease is 68,846 square-feet.

ABSORPTION

Net absorption is back on the rise, after taking a hit last quarter. In Q2 it was just 35,817 square-feet; now it is 88,814 square-feet. Though there is a long way to go to reach the recent record high of 421,430 square-feet that we saw in the beginning of 2015, we are at least headed back in the right direction. Considering three new buildings entered the market this month with a combined 126,000 square-feet of space, it’s a good indicator of market demand that net absorption rose.

OVERALL VACANCY & RENTAL RATES (ALL CLASSES)

This quarter, the market experienced a decrease in vacancy from 6.0% last quarter to 5.7% currently. This correlates with the decrease in vacant square-footage, down from last quarter’s 3,273,675 square-feet to 3,080,214 square-feet currently. Most noteworthy, the quoted rental rate has risen significantly, $0.10 per square foot in just one quarter. It now stands at $17.67 per square foot which is higher than it’s been since prior to Q3 2013. With only one building under construction, new space will not be entering the market anytime soon, forcing businesses to continue to use up existing inventory.

CLASS A TRENDS

Specifically looking at class A office space, vacancy is at 8.2% and the quoted rental rate is $20.80 per square-foot. The year-to-date net absorption is 20,217 square-feet, with 60,000 square-feet in year-to-date deliveries and 40,000 square-feet currently under construction.

CLASS B TRENDS

Specifically looking at class B office space, vacancy is at 5.5% and the quoted rental rate is $17.36 per square-foot. The year-to-date net absorption is 235,677 square-feet, with 126,000 square-feet in year-to-date deliveries. No new buildings are currently under construction.

CLASS C TRENDS

Specifically looking at class C office space, vacancy is at 4.7% and the quoted rental rate is $15.79 per square-foot. The year-to-date net absorption is negative 131,263 square-feet. This is a major drop compared to the other classes and the overall net absorption for the Central PA submarket as a whole. There are zero year-to-date deliveries and zero projects under construction for class C space.

What trend from the second quarter did you find most interesting or impactful to Central Pennsylvania’s office market? Share your opinion by leaving a comment!

Learn more from past market reports:

Central Pennsylvania Industrial Real Estate Report for Q2 2017

Central Pennsylvania Industrial Real Estate Report for Q1 2017

Central PA’s Office Real Estate Market Hangs on to Low Vacancy, Slows Down on Net Absorption

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Central Pennsylvania Industrial Real Estate Report for Q2 2017

Posted on July 17, 2017 by Mike Kushner in Blog, Local Market, Trends No Comments

Net absorption falls by 3.5 million square-feet with more space to come!

In the first quarter of 2017, the Central Pennsylvania industrial real estate market* gained more than two million square-feet of new space. Now into the second quarter, the rate at which we’re adding new space has slowed, but the market is still trying to absorb what was dumped into it earlier this year. As a result, net absorption fell into the negatives, decreasing by more than 3.5 million square-feet from last quarter. The vacancy rate also rose by more than a whole percentage point. Most interestingly, the quoted rental rate actually rose by a penny, placing it back near the recent record high we saw at the end of 2016.

How does this all tie together and what does it mean for the future of Central Pennsylvania’s industrial real estate market? Take a look!

SELECT YEAR-TO-DATE DELIVERIES

As far as new deliveries, Q2 slowed considerably from what we experienced in Q1. Within the first quarter of 2017, Central Pennsylvania received five new industrial properties, totaling a combined 2,244,371 square-feet of space. Now in the second quarter, just three new buildings were completed and added a total of 1349,697 square-feet to the market. Two of these buildings ranked among CoStar’s top 15 select-year-to-date deliveries. Goodman Logistics Center, Building 2 in Carlisle was completed this quarter, adding 938,828 square-feet of unleased space to the market. The other building, located at 53 Commerce Drive in Mechanicsburg, delivered 340,869 square-feet of space, which is 40% occupied.

SELECT TOP UNDER CONSTRUCTION PROPERTIES

Looking forward, Central Pennsylvania stands to gain a considerable amount of new industrial space in the coming year. Five properties are under construction and are set to be delivered later this year and into 2018. The largest is located at 100 Fry Drive in Mechanicsburg with 1.1 million square-feet of fully preleased space that will be completed next quarter. The second largest is Orchard Business Park II, Building A, in York with 780,000 square-feet of unleased space that will be completed in the fourth quarter of 2017. Additionally, the former Quaker Oats manufacturing and distribution facility, located at 485 St. Johns Church Road in Hampden Township, is being renovated into a smaller, modern warehouse facility. The renovation and expansion work will be done by April 2018, and the new warehouse section will be done by next July.

SELECT TOP SALES

Within the last two months, three buildings in Carlisle have sold, totaling an exchange of 2,222,121 square-feet of industrial space. The largest is the Ames True Temper Building with 1,226,525 square-feet which sold for $90,150,000 to Clarion Partners. Located at 1 Ames Drive in Carlisle is 595,000 square-feet of industrial space that sold to UPS for $55 million. Finally, at 100 Louis Parkway, 400,596 square-feet of space sold to Industrial Property Trust for $28,850,000.

ABSORPTION

Net absorption fell significantly this quarter, plummeting to a negative 1,1446,892 square-feet. This is a large drop from the positive net absorption of 2,402,682 square-feet we saw just last quarter. This is the lowest net absorption has been since prior to 2013. With five buildings delivered last quarter, three delivered this quarter, and five more under construction, the rise or fall of future net absorption will be mostly determined by the ability to lease out all of this new space.

VACANCY & RENTAL RATES

As you might expect, based upon other trends, Central Pennsylvania’s vacancy rate for industrial space rose from 4.7% last quarter to 5.8% this quarter. Vacant space also rose by more than 3 million square-feet. Even with negative net absorption and an increase in vacancy rate, the quoted rental rate rose ever so slightly. It is now $4.34, nearly back to the recent record high we experienced at the end of 2016 when it reached $4.36. It will be interesting to watch how the market reacts to the recent influx of new space, further impacting the vacancy and rental rates for Q3 and beyond.

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

*For the purposes of this article, the Central Pennsylvania market is defined as Dauphin, Cumberland, York, Lancaster and Adams Counties.

Learn more from past market reports:

Central Pennsylvania Industrial Real Estate Report for Q1 2017

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

Central PA’s Office Real Estate Market Hangs on to Low Vacancy, Slows Down on Net Absorption

analysis, central pa, central pennsylvania, Commercial Real Estate, data, dillsburg, harrisburg, hershey, industrial, lancaster, lemoyne, market, mechanicsburg, Mike Kushner, new cumberland, news, pennsylvania, report, statistics, trends, warehouse, york

Central PA’s Office Real Estate Market Hangs on to Low Vacancy, Slows Down on Net Absorption

Posted on May 31, 2017 by Mike Kushner in Blog, Commercial Real Estate, Local Market, Trends No Comments

Central PA’s Office Real Estate Market Hangs on to Low Vacancy, Slows Down on Net Absorption

New office space continues to enter the Central Pennsylvania commercial real estate market. One new building was delivered in the first quarter of 2017, and four more are soon to come. Some of the biggest trends worth noting are the recent record-setting low vacancy rate and high rental rate. This proves the demand for office space, despite the decrease in net absorption.

To fully understand the underlying trends and how they stand to impact the commercial real estate marketing and beyond, let’s dig into the numbers. Here’s a look at what took place in 2017’s first quarter in the Central Pennsylvania office real estate market.

Select Year-to-Date Deliveries:

Only six projects from the Greater Philadelphia market made it to CoStar’s Select-Year-to-Date Deliveries list for this quarter. Central Pennsylvania had the second largest office building delivered to the market in Q1, which is located at 4732 Old Gettysburg Road, Building 5, Mechanicsburg. This building delivered three floors and 60,000 square feet of Class A office space. It is not yet occupied.

Top Under-Construction Properties:

In total, four office buildings are under construction in Central Pennsylvania, with a total of 166,000 square feet of new space, of that 92% is preleased. The largest of these projects is located on Buckwalter Road in Lititz, Pennsylvania. It is set to deliver next quarter with 93,000 square feet of Class B office space that is 100% preleased to Listrak.

Absorption and Demand:

Compared to 2016, net absorption has significantly slowed down. Though still in the positive, this quarter’s net absorption of 40,028 square feet is a long way off from the more than 300,000 square-foot net absorption we saw in the second and third quarter of 2016. Though only one building was delivered this quarter, there are four more under construction. It will be worth watching how this additional square footage impacts the market’s ability to absorb the new space over the coming quarters.

Vacancy & Rental Rate:

Vacant square footage continues to creep up to just about where it was one year ago at this time. It has increased then decreased with each passing quarter, and this quarter continues to follow that trend. Even with a nearly 20,000 square-foot increase in vacancy, the vacancy rate stays strong at 6%. This is where it has been since the second quarter of 2016 and is the lowest percentage we have seen since prior to 2013. As for the quoted rental rate, this continues to rise. At $17.49 per square foot, this is the highest the price has been in at least four years.

Our Summary:

Though net absorption has slowed down over the past few quarters, it remains in the positive. The huge increase in absorption that we saw in first quarter 2015, rising from -90,797 square feet to 430,923 square feet, was the result of a burst of new construction, but at that time, the vacancy rate was also higher at 7.4%.

On the up side, the low vacancy rate and high quoted rental rate proves the healthy demand for office space in Central Pennsylvania. In the coming quarters, it will be important to watch how the new buildings entering the market impact this balance. Although four new office building may seem like a large addition of space, 92% is preleased. The question then remains as to whether the businesses filling this space are new and/or expanding, or if they are existing businesses that are moving from another space, then leaving vacancies.

Based upon the data for Central PA’s office real estate market in Q1 2017, what trend do you find to be most interesting or important? Share your insight by commenting below!

[Online Resources] Real Estate, camp hill, central pa, Commercial Real Estate, costar, harrisburg, hershey, lancaster, market, mechanicsburg, Mike Kushner, office, Omni Realty, pennsylvania, rental rates, report, space, trends, vacancy, york

First Thing to Do When Looking for New Office Space

Posted on May 12, 2017 by Mike Kushner in Blog, Tenant Representative/Buyer Agent No Comments

First Thing to Do When Looking for New Office Space

If you’re just starting the journey of exploring new office space options for your business, you may be tempted to independently start browsing online or stop in a few locations that are advertising space for lease. What’s the harm in getting a head start?

A phone call to inquire about the details of a vacancy may lead to an appointment to view the space. While these may seem like innocent, even advantageous, actions, you’ve already made a critical error that could cost you your ability to represent your best interests as the tenant.

In most instances, once you have seen a property with the listing agent, prior to engaging your tenant rep or buyer’s agent, who serves to represent your interests, you lose the ability to do so for that deal. Now you’re left alone to navigate the often challenging and one-sided process of outlining the terms of the lease.

For this reason, it is critical to carefully think about your first move when looking for new office space. The first real estate professional you should speak to is your tenant representative or buyer’s agent. In addition to securing them to represent you for any and all real estate deals, you also gain their valuable expertise to make the process as painless as possible.

Here are just a few key benefits of working with a real estate professional who exclusively represents tenants and buyers and why it should be the first call you make when leasing commercial space.

Someone Looking Out for Your Best Interests

Be sure to qualify your tenant representative. You want someone who only serves the interests of their clients – who are all tenants/buyers. This ensures that the properties they show you are properties they believe will be a good fit for your needs, not because they are also the leasing agent for that property. Additionally, your tenant rep is there to aggressively represent you in negotiations. They have the tools and knowledge to understand fair market value, and will ensure you receive this or better.

Master of Their Trade

When working with a tenant representative, you receive the benefit of specialization. Representing tenants and buyers is what they do all day, every day. They are always thinking like the tenant, and so they are skilled and efficient at brokering deals in your favor. Rather than working with a broker who “dabbles” in both sides of the deal, you gain the peace of mind of working with someone who exclusive represents tenants and buyers.

No Cost to You

Most notably, tenant representatives are not paid for by the tenant; instead, the broker is paid commission by the landlord/owner (99.9% of the time). The commission fee is negotiated before the property is marketed, and that fee is usually paid regardless of whether or not you have a tenant representative/buyer agent (i.e. bigger commission for the leasing agent). Keep this in mind when you ask yourself whether you need a tenant representative. It comes as no cost to you personally and the commission is money that is paid out regardless. There is no downside to having a tenant representative on your side!

No matter where you are in your search for new office space, it’s always worth a phone call to a trusted tenant representative. Even if they cannot represent you for that particular deal, they are often still willing to offer advice to ensure you are getting a sound deal.

Have you recently navigated a search for new office space? Did you first engage a tenant representative? Either way, share your experience by commenting below!

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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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Median Household Incomes Mostly on the Rise for Central Pennsylvania

Posted on September 26, 2016 by Mike Kushner in Blog, Local Market, Trends No Comments

According to the data from the U.S. Census American Community Survey, released on September 15, Central Pennsylvania is following in suit with greater Philadelphia – and the rest of the nation – which is experiencing an increase in median household incomes. Taking into consideration Cumberland, Dauphin, Lancaster, Lebanon and York Counties, here are some of the most notable trends published in the report.

The highest median household income is Cumberland County at $63,890; in contrast, the lowest median household income is Lebanon County at $52,571. Lancaster County increased the most in the last year, by $1,859. Decreasing the most was Lebanon County, by $1,497.

Lancaster County has the lowest median income for Black or African American households at $32,445. While the lowest median income for Hispanic or Latino households is Lebanon County at $25,422. The greatest difference in median income between male versus female householder (with no spouse present) is $18,429 in Cumberland County.

For all counties, the highest median income was for householders between the ages of 45 to 64 years old and for households of married couple families. Also, female householders (with no spouse present) always earned less than male householders (with no spouse present).

If you’re curious what other trends emerged and what these trends tell us about the health of our local economy, let’s take a closer look at each county’s specific numbers.

Cumberland County, Pennsylvania

The 2016 median household income in Cumberland County is $63,890. This number is up from $62,759 in 2014 and is the highest median income we have seen this decade. For householders between the ages of 45 to 64 years old, the median income rises to $78,960. Households of married couple families have the highest median income at $87,714. A male householder with no wife present has a median income of $54,837. In contrast, a female householder with no husband present has a median income of just $36,408. Black or African American households had a median income of $32,661 and Hispanic or Latino households had a median income of $35,097.

Dauphin County, Pennsylvania

The 2016 median household income in Dauphin County is $54,232. Up from $52,975 in 2014, this number has been on an almost steady rise for the last decade. For householders between the ages of 45 to 64 years old, the median income rises to $63,373. Households of married couple families have the highest median income at $79,328. A male householder with no wife present has a median income of $46,430. In contrast, a female householder with no husband present has a median income of just $35,520. Black or African American households had a median income of $37,823 and Hispanic or Latino households had a median income of $33,947.

Lancaster County Pennsylvania

The 2016 median household income in Lancaster County is $59,262. This county experienced the greatest increase in the Central PA region over the last year. Rising from $57,403 by $1,859, this is also the highest number we have seen this decade, which is especially notable since median income took a dip in 2010, falling to $51,740.

For householders between the ages of 45 to 64 years old, the median income rises to $73,155. Households of married couple families have the highest median income at $78,218. A male householder with no wife present has a median income of $47,391. In contrast, a female householder with no husband present has a median income of just $36,925. Black or African American households had a median income of $32,445 and Hispanic or Latino households had a median income of $38,125.

Lebanon County Pennsylvania

The 2016 median household income in Lebanon County is $52,571. Down from 2014’s median income of $54,068, Lebanon County experienced several ups and downs throughout the past decade. For householders between the ages of 45 to 64 years old, the median income rises to $60,578. Households of married couple families have the highest median income at $73,219. A male householder with no wife present has a median income of $44,239. In contrast, a female householder with no husband present has a median income of just $34,383. Black or African American households had a median income of $34,662 and Hispanic or Latino households had a median income of $25,422.

York County, Pennsylvania

The 2016 median household income in York County is $58,409. This was another Central PA county that decreased since 2014, though ever so slightly by just $178 ($58,587 in 2014). With several ups and downs in median income, the number has still mostly been on the rise over the past decade.

For householders between the ages of 45 to 64 years old, the median income rises to $72,004. Households of married couple families have the highest median income at $81,711. A male householder with no wife present has a median income of $46,681. In contrast, a female householder with no husband present has a median income of just $33,911. Black or African American households had a median income of $44,525 and Hispanic or Latino households had a median income of $33,182

Our Analysis

Increasing median household income is just one trend that affects commercial real estate. The local employment gains continue to be strong, with seasonally adjusted unemployment rate holding below 5.0 percent. This adds to the demand for housing in a variety of forms: for office space, for the retail sector and for industrial/distribution facilities.

Underlying inflation is extremely tame, providing no impetus for significantly higher rates. Lending rates and fixed income rates of return will remain low by historical standards. For most metro areas (including Central Pennsylvania) and property types, lower oil prices have been a net positive. Spending less on gasoline encourages consumers to spend more on other items, which helps retail and hotel market fundamentals.

Lower prices directly translate into an increase in household disposable income. Overall, the commercial property market in 2017 will continue to be characterized by strong fundamentals, increased investor flows and high transaction volume.

What median income was most surprising to you? What do you think some these trends say about the health of our local economy? Share your thoughts by commenting below!

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