Fourth quarter 2013 is an important time to take a look at the CoStar Retail Report for Central Pennsylvania. Historically, retail spaces experience some of their heaviest traffic this time of year as a result of holiday shopping. However, we continue to trend toward more and more shopping being done online. How has the concern of retail stores choosing to move from a brick and mortar storefront to e-commerce affected the retail real estate market? Let’s take a look.
Fourth quarter 2013 ended with a 6.5 percent vacancy rate for total retail market in Central Pennsylvania. These rates have seen a consistent decrease throughout the year and are the lowest they have been since second quarter 2011. Additionally, vacant square footage is the lowest it has been since third quarter 2011.
Interestingly, the total Rentable Building Area (RBA) has jumped to over 77 million square feet, meaning there is more retail space than ever. Yet, declining vacancy rates show that this space continues to be in high demand. Quoted rates are also the highest they have been all year, finishing at $11.39. This is the highest rate we have seen since second quarter 2012.
As for existing inventory, fourth quarter 2013 ended with 4,568 buildings, a number that has been slowly but steadily increasing since first quarter 2010. It’s also worth noting that the largest lease signing in 2013 in the Central Pennsylvania Submarket was the 66,472 square foot deal signed by Giant Food at the Ephrata Market Place, Lancaster County.
Net absorption is the lowest it has been all year at 25,019 square feet which is a notable drop compared to the second quarter’s net absorption of 173,125 square feet.
When we take a combined look at this data, we gain a clear picture of the health of the retail real estate market in Central Pennsylvania. I conclude that the economy is experiencing an anemic recovery and along with the conservative nature of Central Pennsylvania, is only adding enough new inventory to be absorbed.
What this data also suggests is that retailers face the risk of higher rent rates, driven by the demand of the market. This quarter’s quoted rates are the highest we have seen in over a year and may continue to increase in correlation with demand. While landlords may be happy to hear about this trend, they should proceed with caution when raising rental rates or risk creating a new pricing bubble.
What do you feel is the most important trend to note from fourth quarter 2013? Share your thoughts by commenting below!