The Central Pennsylvania retail market as a whole did not experience much change in market conditions in the third quarter 2014. The vacancy rate stayed constant ending at 5.8% in the previous quarter and 5.9% in the current quarter. Net absorption was negative 26,668 square feet. Quoted rental rates decreased from second quarter 2014 levels, ending at $11.23 per square foot per year. A total of one retail building with 9,184 square feet of retail space was delivered to the market in the quarter, with 47,586 square feet still under construction at the end of the quarter.
Amidst this stagnant state of growth for Central Pennsylvania retail real estate, two submarkets within this submarket cluster have shown signs of growth over the past year. York and Lancaster have experienced the largest declines in vacancy (compared to other Central PA submarkets) since January 1, 2014. These markets have also experienced the largest absorption of all submarkets during that same time frame.
To better understand exactly what changes have been taking place recently in York and Lancaster, let’s take a look at the highlights.
Deliveries and Under Construction Properties:
Lancaster delivered the Brighton Village Shoppes – Phase II in first quarter 2014. This project included an RBA of 21,000 square feet and was 92% occupied upon completion. It ranked as fourth of the top five year-to-date-deliveries, based on square footage, for the entire Philadelphia retail market.
Aside from completed projects, York and Lancaster also led the way for the Central Pennsylvania submarket in top under construction properties based on project square footage. At 16300 Mount Airy Road in York, a 30,000 square foot facility that is 45 percent preleased is expected to be completed before the year’s end. On Lititz Pike in Lancaster, a 10,820 square foot facility is also expected to be delivered in fourth quarter 2014.
From fourth quarter 2013 to third quarter 2014, Lancaster’s vacancy rate has decreased from 4.5% to 4.0%. This is the lowest vacancy rate in the Central Pennsylvania submarket cluster currently. While not the lowest vacancy rate, York saw a substantial decrease between fourth quarter 2013 and third quarter 2014 from 7.9% to 6.6%. This was the largest decrease experienced by any submarket.
Quoted Rental Rate:
Both Lancaster and York’s quoted rental rates have decreased since one year ago at this time. Lancaster started at $12.14 in fourth quarter 2013 and is now at $12.14 in third quarter 2014. York went from $11.24 to $10.89 in that same period of time. Lancaster has the highest quoted rental rate in the submarket, while York is only behind Harrisburg East and West ($11.30 and $11.74, respectively) coming in fourth highest.
One area in which Lancaster and York won the contest hands-down was in year-to-date net absorption. Through three quarters of 2014, Lancaster ended with 108,168 square feet and York surpassed that with 247,541 square feet. The closest runner up was Harrisburg East with 36,431 square feet and the furthest behind was Harrisburg West with negative 53,107 square feet absorbed.
What this means for the market:
Although the York and Lancaster submarkets have experienced lower vacancy rates and strong absorption, retail overall has been slower to rebound than other property types. With improved GDP and steady employment growth, 2014 marks the first time retailers are expanding. Because of increased levels of e-commerce, retail is expected to become leaner in the future. Technology is enabling merchants to get by with much less inventory which means they need less space.
What other changes have you seen in the retail real estate market recently, whether at the local, state or national level? Share your insights by commenting below!