The first quarter of the New Year started off with quite a bang for Class A office space in the Central Pennsylvania market. No, this bang did not produce an explosion of growth; rather the total office market saw a substantial decrease in net absorption – 451,230 square feet to be exact.
We can only speculate as to everything that worked together to cause this change; however, there is one major event that took place right around this time that would have had a considerable impact, specifically on Class A office space. Highmark used to occupy most of a 230,000 square foot facility at 100 Senate Avenue in Camp Hill. In December of 2013, they vacated the building and consolidated into their existing space on the Center Street campus. This large Class A office space then became available as relet space which could be the cause of the skewed data we saw in the first quarter 2014 CoStar report.
To fully understand the changes that took place in the total office market during the last quarter, let’s take a closer look at the CoStar data for the Central Pennsylvania submarket.
From fourth quarter 2013 to first quarter 2014, net absorption went from 310,777 square feet to negative 140,453 square feet, respectively. The office market hasn’t seen net absorption numbers this low since fourth quarter 2012. In relation to this change in net absorption, the vacancy rate also rose from 8.1 percent to 8.5 percent. While this data provides a starting point for what took place during the first quarter 2014, in order to really get to the root of where the change occurred, we need to break the submarket down even further and take a look specifically at Harrisburg East and Harrisburg West markets.
The Class A Harrisburg East submarket has 39 buildings in existing inventory and a total RBA of 4,464,340 square feet. Currently, there are 435,799 square feet of vacant Class A space and a vacancy rate of 9.8 percent. The net absorption for Harrisburg East in first quarter 2014 was negative 3,069 square feet.
In comparison, the Class A Harrisburg West submarket has 29 buildings in existing inventory and a RBA of 2,315,089 square feet. There are 335,114 total square feet of vacant Class A space. However, most notable are the vacancy rate of 14.5 percent and the net absorption of negative 225,248 square feet. Based on this data, it is clearly the Harrisburg West submarket that experienced the most significant change which matches the location of the Highmark Class A office space that was vacated in December.
Severe winter weather across most of the country – including Central Pennsylvania – depressed business investment and home construction during first quarter 2014. This contributed to Central Pennsylvania’s first quarter of negative absorption (140,453 square feet) after four consecutive quarters of positive absorption. And pushing the office vacancy rate from 8.1 percent to 8.5 percent.
Aside from the increase in office space vacancy, there are also some changes that took place in the last quarter that should trigger growth for the local market. Among the Top 5 Year-to-Date-Deliveries, two are located in the Central Pennsylvania submarket. Number one is the Class A office space located at 1401 Roosevelt Avenue, York, PA. This has a rentable building area of 60,000 square feet and is already 100 percent occupied by Wellspan. Number four on the list is the Class B office space located at 2168 Embassy Drive, Lancaster, PA with an RBA of 9,952 square feet and is 53 percent occupied by a local law firm. Together these deliveries provide not only new office space, but help to bring new and growing businesses to the local area.
Have you been affected by the recent changes in Harrisburg’s office market? Share your thoughts and insights by commenting below!