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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

Central Pennsylvania Office Real Estate Made Few Gains in 2017

Posted on February 19, 2018 by Mike Kushner in Blog, Local Market, Office Leasing No Comments

Vacancy rates in the local office market remained mostly stagnant moving into the New Year.

If the saying “no news is good news” can be applied to Central Pennsylvania’s office real estate market, then 2017 was a good year indeed! We closed out 2017 with few noticeable gains and mostly stagnant vacancy and rental rates. On a positive note this means there were no lasting drops to cause volatility to the market; however, if “stagnant” remains an ongoing theme for our local office real estate market in 2018, we may have some cause for concern.

Let’s take a look at some key data for our three local submarket clusters: Harrisburg/Carlisle, Lancaster and York/Hanover. You will see that each experienced its own ebb and flow with some submarket clusters faring better than others at the close of fourth quarter 2017. The most important question to consider when looking at this data is: “What submarket is poised to perform the best in 2018 and what does that mean for commercial real estate and our local economy?”

Harrisburg/Carlisle Submarket Cluster

Vacancy – The office vacancy rate for the Harrisburg/Carlisle Submarket Cluster increased to 6.3% at the end of the fourth quarter 2017. The vacancy rate was 5.8% at the end of the third quarter 2017, 5.9% at the end of the second quarter 2017, and 6.5% at the end of the first quarter 2017, placing it just shy of where we began the year.

Absorption – Net absorption for the Harrisburg/Carlisle Submarket Cluster was a negative (135,877) square feet in the fourth quarter 2017. That compares to positive 25,603 square feet in the third quarter 2017, negative (6,036) square feet in the second quarter 2017, and positive 22,829 square feet in the first quarter 2017.

Largest Lease Signing – The largest lease signing occurring in 2017 was the 57,764 square foot lease signed by Pennsylvania Health and Wellness, Inc. at 300 Corporate Center Drive located in Camp Hill.

Rental Rates – The average quoted asking rental rate for available office space, all classes, was $18.12 per square foot per year at the end of the fourth quarter 2017 in the Harrisburg/Carlisle Submarket Cluster. This represented a .89% increase in quoted rates from the end of the third quarter 2017, when rents were reported at $17.96 per square foot.

Inventory – Throughout 2017, a total of two new office buildings were delivered to the market with a combined total of 73,000 square feet. At the close of the fourth quarter, two additional buildings remained under construction with a combined total of 70,000 square feet of inventory yet to be delivered.

Lancaster Submarket Cluster

Vacancy – The vacancy rates for the Lancaster Submarket Cluster in 2017 held steady for the first three quarters at 6.0%. Only in fourth quarter 2017 did we see the slightest movement in vacancy to 6.1%. Since its dip to 5.3% in third quarter 2016, the vacancy rate has returned to its recent historical average where it continues to remain stable.

Absorption – In the fourth quarter of 2017, net absorption dropped into the negatives for the first time all year, ending 2017 at negative (13,391) square feet. Net absorption was 2,462 square feet in third quarter 2017, 101,013 square feet in second quarter 2017 and 16,187 square feet in first quarter 2017.

Rental Rates – Even with a drop in net absorption and only a slight increase in vacancy rates, the quoted asking rental rate for available office space, all classes, in the Lancaster Submarket Cluster continued to increase throughout 2017. In the first quarter the quoted rental rate was $16.63, $17.13 in the second quarter, $17.20 in the third quarter and $17.46 in the fourth quarter. This is the highest quoted rental the Lancaster Submarket Cluster has experienced since prior to 2014.

Inventory – Two new office buildings were delivered to the Lancaster Submarket Cluster in 2017. Both delivered in the second quarter and combined they added a total of 113,000 square feet of new office space.

York/Hanover Submarket Cluster

Vacancy – The fourth quarter office vacancy rate for the York/Hanover Submarket Cluster held steady at 5.9%, the same as it was in the third quarter. This is slightly higher than the 5.6% vacancy rate in the second quarter and the 5.8% vacancy rate in the first quarter.

Absorption – The fourth quarter ended with a net absorption of 1,400 square feet. This is an increase from the third quarter’s negative (29,853) square feet that was a significant drop from the second quarter’s 15,646 square feet the first quarter 2017’s 31,636 square feet. This is the only increase in net absorption the market experienced in 2017.

Rental Rates – 2017 started off with a fairly steady quoted asking rental rate for available office space, all classes, of $17.40 per square foot. It increased by $0.01 in the second quarter to $17.41 and spiked in the third quarter at $18.05. Though still higher than the first two quarters, 2017 finished with a slight dip in quoted rental rates as it fell to $17.74.

Inventory – No new office buildings were delivered in the York/Hanover Submarket Cluster in 2017. There is one building under construction with a total RBA of 840 square feet.

Looking at the comparison of the three Central Pennsylvania submarket clusters, which do you feel is in the best position to start making some moves in 2018? Share your ideas by leaving a comment below.

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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

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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!

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Central Pennsylvania Office Space Vacancy Drops to 8.2% in 4th Quarter 2013

Posted on April 16, 2014 by mike.kushner in Blog, Commercial Real Estate, Local Market, Trends No Comments

The fourth quarter 2013 was a big year for the Central Pennsylvania office market. New and existing businesses filled up even more space across the area. As a result, the total vacancy rate saw a substantial decrease from where it was just one year ago and the net absorption totals surged well into the positive numbers, reaching an all-time in high in nearly four years.

This activity was a boost to the Central Pennsylvania commercial real estate market. Just one example in the area was listed as the Select Top 10 Office Leases of the year by CoStar. This deal took place in Harrisburg Area East when Comcast took over a 110,000 square foot facility located a 2801 Valley Road.

To better understand this shift in trends, and what it could mean for the future of the commercial real estate market in the area, let’s take a closer look at how the numbers stack up for both the vacancy rates, net absorption and rental rates

vacant space

Vacancy Rates

The Central Pennsylvania Office market ended the year with a vacancy rate of 8.2%. The vacancy rate was down over the rate one year ago at this time which was 10.0% in fourth quarter 2012. More specifically, Harrisburg Area East ended the year with a vacancy rate of 9.3% and Harrisburg Area West with 7.0%.

This is the first time vacancy rates have dipped below 9.0% in more than four years, most commonly averaging around 9.2% during that time.

Net Absorption

Complimenting the trend of decreasing vacancy rates, fourth quarter 2013’s net absorption increased to a positive 277,713 square feet. This is a sizeable jump compared to fourth quarter 2012’s which was a negative 189,586 square feet.

In first quarter 2013, net absorption rates were at a positive 219,789 square feet before dropping to 200,051 square feet in the second quarter. The third quarter dropped even further, dipping below 200,000, to 191, 956 square feet. The fourth quarter 2013 ended with the largest positive net absorption since fourth quarter 2010.

Rental Rates

The average quoted asking rental rate for available office space was $16.44 per square foot at the end of the fourth quarter 2013. This represented a 0.4% increase in quoted rental rates from the end of the third quarter 2013 when rents were reported at $16.38 per square foot.

So what does this mean for the Central Pennsylvania commercial real estate market and the supply and demand of office space? The commercial office leasing market continues to recover from the deep contraction brought on by the great recession. The key economic indicators that affect office leasing activity (e.g. GDP, employment data, and manufacturing activity) continue to experience improvement. We anticipate that this slow steady trend will continue for the balance of 2014.

How have you felt the impact of these changes in the market? Share your ideas and opinions by commenting below!

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