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  • 2013 economic forecast: High Associates’ annual report to Lancaster Pa. real estate professionals includes cautious optimism that businesses are positioned for growth

    Published by High Associates. on February 14th, 2013

    On February 13 at the Lancaster County Convention Center, High Associates provided its annual economic forecast to the Lancaster Commercial & Industrial Real Estate Council, discussing the performance of the commercial/industrial real estate marketplace in Lancaster, Pa.  (To view the slide presentation, click here.)

    High Associates tracks the performance of Class A office, Class B office, business center, flex space, industrial, and retail products. Overall performance of the Lancaster commercial/ industrial real estate market showed positive results, despite the uncertainty of the economy and it the issues centered around an election year. The following is a by-product summary of what was presented.

    Class A Office Buildings

    Currently we track the performance of 1.6 million square feet of for-lease Class A buildings in the greater Lancaster area. In 2012, this product group experienced solid performance with a positive net absorption of 40,010 square feet. This reduced the vacancy level from 8.3% in 2011 to a current level of 5.9%. While absorption was strong, pricing of this product was soft, seeing no appreciable increases since 2010. The year 2012, however, saw elimination of concessions that had been offered in previous years. Recent 2013 availabilities, due to corporate downsizings, indicate that 2013 will be challenged to post positive numbers for absorption. Rents are expected to be stable with modest increases coming at the end of 2013 or early 2014.

    Class B Office Buildings

    The Class B market in the Lancaster area measures in excess of 2.5 million square feet. In 2012, unlike the previous 2 years, the Class B market posted respectable positive absorption. With the net absorption of 22,414 vacancy rates declined from 21.9% in 2011 to a current rate of 20.2%. The performance of this class has been weak since being tracked. Development of Class A product and lack of job growth has kept rates and demand from flat to declining. The available supply is 513,538 square feet and is expected to indefinitely satisfy the market demand for affordable office space.

    Business Center Building

    After two good years of performance of Business Center space, 2012 proved to be a soft year for absorption. While there were numerous transactions, the net result was a positive absorption of 2,563 square feet. This is below the 13-year average of 10,000 square feet. The impact to vacancy loss was a reduction in rate of .2% to a current level of 19.7%. The available supply is approximately 240,000 square feet. This product, as well as all other office space, is driven by job creation. While the economy saw a stabilization of job loss, without new office-related jobs being created, absorption and pricing increases will be relatively flat for 2013 and beyond.

    Flex Buildings

    Within the greater Lancaster market, there is approximately 800,000 square feet of flex product that is tracked annually. In 2012, there was positive net absorption of 11,370 square feet. This pace is consistent with previous history. There was a large number of transactions in 2012 with most of the positive performance occurring in the Greenfield Corporate Center. Vacancy rates saw positive movement, falling from 11.2% in 2011 to a rate of 8.4% in 2012. Available supply is at a pre-recession level of 65,000 square feet. We expect to see pricing pressure occur in 2013 and 2014 with greater than inflationary increases occurring.

    Industrial Buildings

    2012 saw limited new construction with only two construction projects; Tell Industries in Manheim Township and the Paccar expansion in East Hempfield Township. These projects added approximately 125,000 square feet, bringing Lancaster County’s industrial sector to 14.1 million square feet in size. Current vacancy is 1,525,167 square feet or 10.75%. This is up slightly from the 2011 rate of 10.25%, significantly below national rates of 13%.  When looking at absorption, this grouping had negative performance of 16,430 square feet, due largely to the additional of several obsolete products coming back on to the market in the northern portion of Lancaster County. When looking at what comprises this inventory, the majority is lower ceiling, formerly owner-occupied buildings. The vacancy rate for high quality/utility, institutional grade products is actually closer to 6%. Due to limited supplies, there is greater pricing pressure on this segment. Pricing increases will outpace inflation for the next two years.

    Retail Products

    Retail experienced its first year of negative absorption since being tracked. 2012’s performance was a net abortion of -41,135 square feet. This is made up of increased vacancies throughout our community such as Mount Joy, Lititz, Willow Street, and Lancaster. The current available supply of space is estimated at 546,242 square feet. While not positive, Lancaster’s retail health is still thought to be strong with a vacancy rate of 8.9%. Many national chains continue to show interest in Lancaster as in-fill location with strong demographics.

    While it is acknowledged that there is uncertainty with the economy, we believe that businesses are well positioned for growth in 2013 and we are cautiously optimistic that 2013 will be a stronger year than 2012.

    Mike Lorelli, Senior V.P. – Commercial Asset Management, High Associates Ltd.

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