Harrisburg PA Office Market Second Quarter 2017

The second quarter was a continuation of the slowing in the Harrisburg PA office market that began in the fourth quarter of last year.  With a net absorption of -2,039 square feet within the 1,700+ buildings in the Costar survey, the second quarter was the second in the last three with negative absorption.  It was also noted that Q3 is also off to a weak start.

For this survey, the Harrisburg market was defined as Cumberland and Dauphin counties.  As indicated, over 1,700 buildings were included with a total of 32.4 million square feet.

Over the last 12 months, absorption in the market totaled just over 240,000 square feet, a bit below the five year average of about 264,000 square feet.

The average asking rent currently stands at $17.78 per square foot with gross leasing terms, compared with the five year average of $17.50 per square foot.

Harrisburg PA Office Market

As indicated on this graph, the average asking rent has held within a fairly narrow range between about $17 to $18 for about ten years.  Over the last several years, since bottoming in early 2014, rents have clearly trended higher.  With weak absorption over the last nine months, it is questionable whether this trend can continue.

At the end of the second quarter, the overall vacancy rate was 6%, compared to the 5 year average of 7.7%.

harrisburgofficevacancyq22017

It is no surprise that there has been an inverse correlation between the average asking rent and vacancy rates over the last few years.

Helping the vacancy rate and average asking rent is the fact that only one new building has been started in the last 12 months, and it remains the only new building under construction in the market.

Harrisburg Office Market4600 Lena Drive (at right), located in the Westport Business Center to the south of Mechanicsburg, is scheduled to be completed in January 2018 and will contain 40,000 square feet of space.  Developed by Hollinger Development, the asking rent is $19.95 per square foot with gross terms, and over 77% will be occupied by completion.

Over the last twelve months, the market has seen new deliveries of 222,000 square feet.

On the leasing front, given the nature of the market, there are few lease transactions involving space amounting to over 10,000 square feet.  This was the case in the second quarter, with just a handful of such transactions.

The largest of these was the lease of a class B building located at 75 Shannon Road in the Gateway Corporate Center in Lower Paxton Township.  The entire free-standing building containing 20,887 square feet was recently leased after being on the market for about two years.  The asking rent was $9.00 per square foot with triple net lease terms.

In the second quarter, the average time spent on the market for vacant space was 18.1 months, compared to the 5 year average of 22.1 months.

As indicated, the current quarter is off to a weak start.  However, with only one building under construction, there should be little change in the average asking rent and vacancy rates in the foreseeable future.

 

 

 

Baltimore Office Market Report Second Quarter 2017

Baltimore Office MarketThe Baltimore office market continued its red hot pace in the second quarter, a pace that began a year ago and resulted in over 1.2 million square feet of positive absorption in the last twelve months.

The Baltimore market consists of Baltimore City and the surrounding counties of Anne Arundel, Baltimore, Carroll, Cecil, Harford, Howard, Kent and Queen Annes.  Most of the activity is focused in Baltimore City, Anne Arundel County, Baltimore County and Howard County.

One of the biggest deals of the second quarter was for over 31,000 square feet of space within 308 Sentinel Drive in Annapolis junction, where the asking rent was $37.00 per square foot on a gross basis. This five store building containing 160,000 square feet was constructed in 2010.

Let’s have a look at some of the numbers….

The average asking rent has jumped to $22.67 per square foot gross, and is now over a dollar above the five year average of $21.59 per square foot.

Baltimore Office Market

As this graph indicates, the average asking rent is now just below the high of the last ten years after bottoming in 2014.

The vacancy rate stands at 10.1%, more than a full point below the five year average of 11.2%.

Baltimore Office Market

Given the pace of absorption over the last twelve months, it is no surprise that the vacancy rate is near ten year lows, even while a substantial amount of new space has been added to the market.

Net absorption in the second quarter was over 354,000 square feet, after a first quarter that posted positive absorption of nearly 550,000 square feet.  There is over 140 million square feet of space in the market.

Twelve month construction starts were 916,042 square feet.  There is just over one million square feet of space currently under construction, and two million square feet of space as delivered in the last twelve months.

The largest project currently underway is the 320,000 square foot McCormick & Co. headquarters under construction in Hunt Valley in Baltimore County.  The building is expected to be completed in mid-2018.

The larges speculative project underway is Building E in the Annapolis Corporate Park, which will contain 129,800 square feet.  The building is due to be completed in early 2018.

The average time on the market for vacant space is now 15 months, well below the five year average of 20 months.

It is interesting to note how well the Baltimore office market is performing compared to the Washington, DC office market, which continues to struggle with high vacancy rates in a number of areas.

While the current torrid pace will likely slow at some point, as long as the economy continues to perform, the office market should still enjoy positive absorption over the next few quarters.

 

 

 

2nd Quarter 2017 Montgomery County Maryland Office Report

The second quarter of 2017 proved to be a bit of a downer in the Montgomery County, Maryland office market.  According to recent Costar data, absorption in the second quarter was negative 411,468 square feet.

The survey included over 1,500 buildings and 72.75 million square feet of space.  The current vacancy rate stands at 13.9%, which is still only 9/10ths below the 10 year high set in 2015 of 14.8%.

 

Montgomery County Maryland Office Market

The current average asking rent for the county is $28.46 per square foot with gross lease terms, and the trend continues to be to the upside.  The average asking rent continues to be driven higher by the Bethesda/Chevy Chase sub-market, which will be discussed in a bit.

Montgomery County Maryland Office Rents

In the last twelve months, net absorption is negative 356,359 square feet.  The total inventory is 600,000 square feet below the peak seen in 2015.  A total of 220,000 square feet of new construction was started in the last twelve months with just under 400,000 square feet of space under construction, primarily located in the Silver Spring sub-market.

Fenton Street ProjectThe newest project to be delivered will be 96,000 square feet of space located at Fenton Street and Bonifant Street in Silver Spring (seen to the right).  The building is scheduled to be completed in August and 57% of the building is already leased.

Another project located at 1000 Spring Street is scheduled to be completed in May 2018.

Some potential re-development efforts are gaining traction in the Bethesda-Chevy Chase submarket, which is the strongest in the County, with market rents nearly 30% above the next strongest submarket in Rockville.

One of the primary concerns for the market is that the GSA, the largest contributor to leasing throughout the DC metro, is starting to downsize and become more efficient after lawmakers gave the GSA space efficiency guidelines.

Ultimately, along with the rest of the DC metro, Montgomery County remains a renters market, and this should continue to be the case into the foreseeable future.

 

What a real estate consultant can do for you

realestateconsultant1Over the years, I’ve produced thousands of appraisal reports for commercial and industrial properties.  In many instances, I was left shaking my head when I learned what a property owner had paid for a certain property, particularly when that property owner was under water on the mortgage.

Think about this… purchasing a building for your business or as an investment is always one of the most important financial decisions you will make in your lifetime.

With that in mind, it is beyond me why people don’t do all they can to get themselves as informed as possible before making a decision to buy a property, or even to expand or renovate an existing building.

Commercial real estate appraisers and consultants can provide you with an invaluable service in this regard.

Recently, I worked on an appraisal assignment involving the purchase of a small industrial building.   My client was the bank that was to provide the financing for the purchase.

The property was under contract for $400,000.  When I conducted my inspection, I met with the buyer, who took me through the property as he was given the key.

What I discovered was a building in shell condition situated on a very unappealing site that had no paved parking.

In other words, the property required substantial renovation, but the purchase price was reflective of a building that was already in usable condition.

In conversation with the buyer, I discovered that he really did not know much about commercial real estate.

As it turned out, my value conclusion didn’t come in anywhere near the purchase price.  The data simply could not support the purchase price.

Not only did the prospective buyer lose out on the fees he had to pay the bank for my services, but he lost more time in his search for a building suitable for his business.

Real Estate Consulting Services

This prospective buyer could have avoided this scenario entirely by hiring a consultant to simply provide him with a report regarding current market conditions for the type of building he was looking to purchase.  The consultant could also provide him a list of properties available that met his criteria.

Informed with that data, he could’ve made a much more intelligent decision regarding his purchase.

A real estate consultant can provide you with a variety of services.

If you are a business owner interested in purchasing a building for your business, an investor looking to add a new building to your portfolio, or a property owner considering new improvements to your building, an independent consultant can provide you with all of the data you need to make an informed decision.

This data can include….

  • Recent sales data for the type of building you are looking for in the area in which you are looking
  • General price trends
  • Recent leasing data and trends in market rents to help determine an appropriate market rent for your building type
  • Vacancy levels and absorption rates
  • Typical operating expenses
  • Typical capitalization rates
  • Recent land sales data and construction cost data if you are thinking about constructing a new building

Much of this data is found within a typical appraisal report.  But, you won’t need an appraisal for this purpose, just some data to get you informed about the market.  Therefore, the cost of such consulting services will likely be significantly less than what you will pay for a well written appraisal.

Independent Real Estate Consultant vs. Broker

A broker who only works on commission can also provide you with these services, but their underlying goal is going to be to represent you during your purchase, or obtain your listing if you intend to sell.

Since they work on commission, their natural inclination may be to steer you in a certain direction that benefits them the most, not you.

The fact of the matter is that brokers prefer to represent sellers by obtaining listings.  Representing buyers is far more time consuming, and a broker only has potential to receive half of a commission on any deal.  Listing brokers, on the other hand, have the potential to receive the entire commission if the list a property and find the buyer for that property.

An independent consultant has no agenda except to provide you with the best information available to help you make a decision.  This is because they are going to work on a straight fee or on an hourly rate, depending upon your needs.

This is not a knock on the brokerage industry…most commercial brokers I know are true professionals.  But, the reality is that they work very hard, and prefer not to work for free.  Who wants to do that?

Final Thoughts

There is virtually no downside to hiring an independent real estate consultant when you are considering a major decision involving commercial real estate.

Real estate sales and purchases can often involve a lot of emotion.  Unfortunately, that is when bad decisions can occur.  It is important to kick that emotion to the curb and become as informed as possible.

I’ve really only scratched the surface in regard to the types of services a real estate consultant can provide to you.

If you are in the market to buy or sell, whether it is a home or a commercial property, contact a consultant first.  Determine what services you want provided, and then you can go from there.

 

Hiring an independent real estate consultant for your major real estate decisions may be one of the wisest moves you will ever make.

Southcentral PA Commercial Real Estate Sales Trends July 2017

In my consulting business, a cover the counties that make up Southcentral Pennsylvania, from Lancaster to the east to Franklin County to the west.

I utilized the Costar service to identify recent sales trends for office, retail, industrial and multifamily properties in these counties.

Southcentral PA Office Sales Trends

In the second quarter, there were 53 sales totaling just over 470,000 square feet with an average sale price of $136 per square foot.  The average cap rate was 8.4%.

The largest transaction involved 100 Corporate Center Drive in Camp Hill, which sold for $6,820,000 in June.

In the first quarter, there were 50 sales altogether with an average price of $88 per square foot and an average cap rate of 9.8%.

In the year ago period, there were 58 sales with an average price of $92 per square foot and an average cap rate of 7.4%.

Over the last five years, the average sale price has been $80 per square foot with an average cap rate of 8.0%.

SCPA5yearofficeavgsaleprice

As indicated by the data this graph, there has been no real clear trend in the average sale price over the last five years.  We’ll see if the recent up swing in prices leads to a more permanent trend.

Southcentral PA Office Market

In general, the average cap rate has been relatively stable over the last four years, but appears to be trending modestly upward since the low was set in mid-2014.

Southcentral PA Retail Property Sales Trends

In the retail sector, there were 87 sales totaling just under 700,000 square feet in the second quarter with an average price of $142 per square foot.  The average cap rate was 6.5% with a range from 5.6% to 7.6%.

In the first quarter there were 74 sales totaling 650,000 square feet with an average price of $96 per square foot with an average cap rate of 7.4%.

In the year ago period there were 92 sales with an average price of $72 per sqaure foot and an average cap rate of 6.9%.

over the last five years, the average sale price has been $93 per square foot with an average cap rate of 7.5%.

Southcentral PA retail market

While the last quarter saw a spike in the price per square foot, over the last five years, the average price has been generally range bound between $60 and $110 per square foot.  That’s a pretty wide range nonetheless, as sales typically involve lower quality buildings.

SCPA5yearretailavgcaprateQ22017

After peaking in 2015, cap rates for retail properties appear to be trending lower,  and the latest quarter has seen the lowest average yet.

Southcentral PA Industrial Market

In the second quarter, there were 45 sales totaling 3.64 million square feet.  The average sale price was $66 per square foot.  The average cap rate was 5.4% with a range of 5% to 6%.

The most significant transaction was the Logistics Center at Carlisle facility containing 595,000 square feet which sold in May for $55 million to UPS.

In the first quarter, there were 49 sales totaling 3.877 milion square feet with an average sale price of $40 per square foot and an average cap rate of 6.8%.

In the year ago period, the average sale price was $53 per square foot with an average cap rate of 6.9%.

Over the last five years, the average sale price has been $46 per square foot with an average cap rate of 6.5%.

SCPA5yearindavgsalepriceQ22017

The average price in the recent quarter was clearly impacted by the UPS transaction, which was priced at over $92 per square foot.  Otherwise, the average price per square foot has been pretty consistent  over the last couple of years.

Southcentral PA Industrial Real Estate

Cap rates for industrial space in Southcentral PA have consistently stayed within a range of 6% to 9% for several years.  However, the more recent trend is lower as some high quality properties have transferred.

Southcentral PA Multifamily Sales Trends

In the second quarter, there were 18 sales with an average price of $89,706 per unit.  The average cap rate was 7.5% with a range from 6% to 8.5%.

The most significant transaction involved a property located at 99 Dickens Drive in Lancaster, which sold for $17.2 million.

In the first quarter, there were only 11 sales with an average price of $65,323 per unit and an average cap rate of 6.6%.

In the year ago period, there were 35 sales with an average price of $58,498 per unit with an average cap rate of 10.6%.

Over the last five years the average sale price has been $53,924 per unit with an average cap rate of 8.6%.

It should be noted that Costart typically doesn’t keep up with the smaller transactions that occur in the marketplace within the multifamily sector.  Most of the sales found in the service involve properties selling for $500,000 or more, with a few exceptions.

Southcentral PA Apartment market

Judging from this graph, it appears that the multifamily market has broken through a significant level above $75,000 per unit.  The sector has now experienced three consecutive quarters with increases in the average price per unit.  it will be interesting to see if this trend continues.

SCPA5yearlmultifamilycapratesQ22017

As one would expect, with the higher average price per unit, cap rates are hovering at historically low levels for this market.

Final Thoughts

Overall, the commercial real estate markets in Southcentral PA enjoyed a very strong quarter in terms of higher prices.  If the economy continues its steady pace, expect these markets to continue to perform reasonable well into the foreseeable future.

Baltimore Commercial Real Estate Sales Trends Second Quarter 2017

I cover most of the counties that make up the Baltimore region, as well as the city itself.

Through the use of the Costar service, I have conducted a survey of the commercial real estate markets in these counties involving recent sales transactions and longer term sales trends.  These counties include Anne Arundel, Baltimore, Carroll, Howard and Harford, in addition to Baltimore City.

Second Quarter 2017 Office Sales Trends

In the 2nd quarter, there were 78 sales involving just over 2.3 million square feet with an average price of $125.00 per square foot.  The average cap rate was 7.8% with a range from 4.3% to 10%.

The largest transaction involved the M&T Bank building on Charles Street in the downtown area.  The 359,000 square foot building sold for $24.5 million, or just over $68 per square foot.

In the first quarter, there wer 80 sales with an average price of $163 per square foot and an average cap rate of 8.6%.

In the year ago period there were 107 sales with an average price of $72 per square foot and an average cap rate of 8.5%.

The five year average sale price is $133 per square foot with an average cap rate of 8.0%.

Baltimore Office Market

From quarter to quarter, the average sale price is quite choppy from a high of nearly $220 per square foot in Q1 2016 to the Q2 2016 low of $72.

5yearaverageofficecaprate

Unlike the average sale price, the average cap rate has remained within a tight range for nearly three years.

2nd Quarter Baltimore Retail Sales Trends

In the retail sector, there were 86 sales with an average sale price of $155 per square foot and an average cap rate of 7.6%.  The range in cap rates was 6.0% to 9.7%.

The largest transaction was the Wal-Mart anchored Liberty Plaza shopping center in Randallstown which sold for $28.5 million, or $177.12 per square foot.

In the first quarter, there were 102 sales with an average price of $131 per square foot and an average cap rate of 7.6%.

In the year ago period there were 219 sales with an average price of $117 per square foot and an average cap rate of 7.6%

Over the last five years, the average sale price has been $167 per square foot with an average cap rate of 7.5%

5yearaverageretailsaleprice

The average sale price has held within a fairly tight range over the last three years, unlike the previous two years.

Baltimore Retail real estate market

Similar to the office sector, cap rates in the retail sector have held within a fairly tight range over the last three years.

Baltimore Industrial Market Second Quarter 2017

In the second quarter of this year, there were 33 sales involving just under 3 million square feet.  The average sale price was $70 per square foot.  The average cap rate was 7.6% with a range from 6% to 9%.

The most significant transaction was the C&S Wholesale Grocers property at 1000 Old Philadelphia Road in Aberdeen, which sold for $36 million.  This refrigerated cold storage facility contains just over 401,000 square feet.

In the first quarter, there were 34 sales with an average price of $40 per square foot and an average cap rate of 9.0%

In the year ago period, there were 39 sales with an average price of $71 per square foot and an average cap rate of 8.2%.

Over the last five years the average sale price is $59 per square foot with an average cap rate of 6.8%.

5yearaverageindsaleprice

As may be seen in this graph, the average sale price for industrial buildings has been quite volatilie for the last three years.  In the most recent period, the average price is clearly skewed by the large transaction involving C&S Wholesale Grocers as mentioned.

Baltimore Industrial Real Estate Market

Cap rates for industrial buildings have been a bit volatile during the last five years, as seen on the graph.

2nd Quarter Baltimore Multifamily Sales Trends

In the multifamily sector, there were 25 sales in the second quarter with an average price of $73,508 per unit.  The average cap rate was 7.7% and the the range was 5.9% to 10.8%.

The largest transaction involved Marble Hall Gardens in Baltimore near Morgan State University.  This property sold for $31 million and contains 393 units.  The indicated price per unit was $78,880.

In the first quarter there were 35 sales  with an average price of $133,495 per unit and an average cap rate of 6.4%.

In the year ago period there were 49 sales with an average price of $149,708 per unit and an average cap rate of 6.8%.

Over the last five years, the average sale price has been $126,426 per unit with an average cap rate of 7.3%

Baltimore Apartment Market

After peaking in the 3rd quarter of last year, the average price per unit for apartment properties has plunged drastically.  We’ll see what the next couple of quarters will bring.

Baltimore Apartment Market

Cap rates for apartment properties in the Baltimore region have held within a fairly tight range over the last 3.5 years.  The current trend appears to be higher, as the low price per unit suggests that lower quality properties have been changing hands more recently.

Final Thoughts

Similar to the Maryland suburbs around DC, which I wrote about here,  it appears that many buyers and investors have been on the sidelines this year, and particularly in the latest quarter.  One could speculate that this is due to having a new administration in DC, along with the issues facing this particular administration.  We’ll see if these trends continue to remain intact in the next couple of quarters.

 

Second Quarter 2017 Suburban Maryland Commercial Real Estate Sales Trends

I cover a number of the suburban Washington, DC counties in Maryland with my consulting services.  These counties include Anne Arundel, Frederick, Howard, Montgomery, Prince George’s and Washington, or from Annapolis to Hagerstown.

Through the use of the Costar service, I have conducted a survey of the commercial real estate markets in these counties involving recent sales transactions and longer term sales trends.

Suburban Washington DC Office Market (Maryland suburbs)

In the second quarter of 2017 there were 64 sales identified by Costar involving 1.76 millioon square feet.  The average sale price was $111 per square foot.  The average capitalization rate among the transactions where such data was available was 7.3% wth a range from 6.4% to 8.0%.

The largest transaction involved the Shady Grove Plaza in Montgomery County, which sold for $24.76 million in May, or nearly $137 per square foot.

This compares with a far more active first quarter where there were 121 sales involving just over three million square feet.  The average price was $113 per square foot and the average cap rate was 8.2%.

In the year ago period, there were 145 sales totaling almost 4 million square feet.  The average sale price was $163 per square foot and the average cap rate was 8.9%.

Over the last five years, the average sale price has been $159 per square foot with an average cap rate of 8.0%.

5yearaverageofficesaleprice

As can be seen by this graph, the average sale price each quarter over the last five years is actually quite random in the office market.  However, it does appear that the current trend is somewhat lower, as activity has slowed.  This is something worth keeping an eye on for the foreseeable future.

5yearaverageofficecaprate

This graph indicates overall cap rates for each quarter over the last five years.  Over the last two years, the range has been somewhat narrow between just under 7% to just under 9%.

 

Suburban Washington DC Retail Sales (Maryland suburbs)

In the second quarter of this year there were 78 sales totaling 1.11 million square feet.  The average sale price was $231 per square feet, and the average cap rate was 7.5% with a range from 6.1% to 8.5%.

The largest transaction involved Largo Towne Center in Upper Marlboro, Prince George’s County.  This property sold in June for nearly $56 million, or $227.53/SF for the 249,905 square foot shopping center.

In the first quarter there were 140 sales involving over 2.6 million square feet with an average price of $178 per square foot.  The average cap rate was 6.6%.

In the year ago period, there were 163 sales with an average price of $147 per square foot and an average cap rate of 7.0%.

Over the last five years, the average price has been $202 per square foot with an average cap rate of 7.0%.

5yearaverageretailsaleprice

Similar to the office market, there is no real trend in prices over the last three years, after a clear up trend in the prior two years.

5yearaverageretailcaprate

The overall trend in cap rates has been slightly higher since the five year low was set in early 2015.

 

Suburban DC Industrial Sales (Maryland Suburbs)

In the second quarter of 2017, there were 40 sales involving almost 1.9 million square feet with an average sale price of $86 per square foot.  The average cap rate was 7.6% with a range from 6% to 8.7%.

The largest transaction was the 475,000 square foot warehouse located at 9325 Snowden River Parkway in Columbia with sold for $29.2 million, or just over $61 per square foot.

In the first quarter there were 43 sales totaling just under 900,000 square feet.  The average price was $98 per square foot and the average cap rate was 8.5%.

In the year ago period there were 61 sales totaling over 2.2 million square feet with an average price of $83 per square foot and an average cap rate of 8.0%.

Over the last five years, the average sale price has been $73 per square foot with an average cap rate of 6.8%.

5yearaverageindsaleprice

Unlike the office and retail markets, there has been a clear up trend in the price of industrial properties over the last four years with the first quarter of this year seeing the highest average in the last five years.

5yearaverageindcaprate

While sale prices have climbed, cap rates have shown a choppy trend to the upside.

 

Washington DC Suburban Apartment Market (Maryland Suburbs)

In the second quarter of this year, there were 13 sales with an average price per unit of $123,303.  The average cap rate was 6.4% with a range from 5.6% to 7.6%.

The largest transaction was The Montgomery Apartments in Bethesda, which sold for $63,500,000 in June, or $165,284 per unit.

In the first quarter, there were 31 sales with an average price of $162,997 per unit and an average cap rate of 7.7%.

In the year ago period, there were 30 sales with an average price of $166,453 per unit and an average cap rate of 6.3%.

Over the last five years, the average sale price has been $142,909 per unit with an average cap rate of 6.6%.

It is noted that this market generally involves larger, institutional grade properties with at least 100 units.  This market does not have many smaller properties such as what may be found in Washington, DC and Baltimore City.  As such, there are fewer sales due to a smaller supply of potential buyers.

5yearaveragemfsaleprice

Over the last six quarters, the trend in price per unit has clearly been to the downside, reversing the trend of the prior two years.

5yearaveragemfcaprate

After hitting a multi-year peak in the first quarter, the average cap rate fell back into the middle of the range of the last five years.

 

Final Thoughts

In all four sectors, the pace of sales slowed.  The rate of slowing range from modest in the industrial sector to significant in the office and retail sectors.  For whatever reason, investors have clearly expressed some caution over the last three months.  Whether this becomes a new trend will become more evident as the year progresses.