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.
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%.
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.
4600 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.