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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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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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Central Pennsylvania’s Largest Retail, Industrial and Office Lease Deals in 2015

Posted on March 23, 2016 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.

The New Year is well under way, but before we get too far into 2016, it’s worth taking a look back at the largest commercial lease deals that occurred in the Central Pennsylvania market in 2015. These deals represent significant trends and help predict where the market may be headed in future quarters.

Each sector within the commercial real estate market – retail, office and industrial – experienced a unique trend worth noting. Without further ado, let’s take a closer look at the largest lease deals that occurred in Dauphin, Cumberland, York, Lancaster and Lebanon counties for the retail, office, and industrial markets in 2015.

Largest Retail Lease Deals

1. Community Aid leased the first floor of a Class B retail space located at 25-31 Rohrerstown Road, Lancaster from Urban Edge Properties. The 40,712 square-foot lease was signed in January 2015 and began in June 2015.