The Keystone State Holds Strong
Host to the creation of the Stars and Stripes, the drafting of the Constitution, and four games of the first World Series, Pennsylvania is steeped in U.S. history.
Today the state claims the nation's largest rural population, which contributes to a thriving agricultural sector. Although marginally affected by the slowing economy, the majority of Pennsylvania's cities have managed to avoid many of the nation's worries and expect sustained, if not thriving, economies and commercial real estate sectors for the remainder of 2001.
The multifamily market in Pennsylvania's largest city, Philadelphia, is extremely tight, according to Joseph Verdejo, CCIM, of Insignia/ESG. The city's multifamily occupancy rate remains high at 97 percent. Lease rates continue to increase, with class A rates averaging between $1 per square foot and $1.70 psf and class B rates ranging from 8 cents psf to $1 psf. Sales prices in Philadelphia also are increasing, he says.
In Pittsburgh, the multifamily market is suffering a “lack of available product, especially larger complexes,” reports Peter Sukernek, CCIM, of Howard Hanna Commercial Real Estate Services. Due to the influx of a young, highly educated workforce, occupancy rates remain at more than 90 percent, he says. Sukernek believes that multifamily will remain the “strongest and most-sought-after type of investor-owner property” in Pittsburgh.
Penn State University attracts more than 40,000 students to State College each year, increasing the need for housing in the city. State College boasts relatively low land costs, and in the last three years, more than 1,000 new units flooded the multifamily market, reports Charlene Friedman, CCIM, of Industrial Commercial Realty.
Multifamily occupancy rates in State College hover between 95 percent and 98 percent, according to Scott L. Yocum, CCIM, of Re/Max Centre Realty. Lease rates are rising slightly, but sales are stagnant, he says. Yocum believes that the multifamily market will keep increasing, due in part to a new road system that will connect State College with Interstate 80. Friedman adds that an influx of retirees also will affect the market and predicts seniors housing to be the next hot trend.
In contrast to other regions in the nation, Lehigh Valley continues to experience a strong economy, reports Frank T. Smith, CCIM, CPM, of Summit Management and Realty Co. in Allentown. Local, national, and international companies all make their homes in this region north of Philadelphia because of its excellent location, workforce, and universities. Due to these advantages, “The retail market in Lehigh Valley continues to see excellent activity,” Smith says.
Stefan N. Cihylik, CCIM, of the Frederick Group Ltd. in Allentown reports that a fair amount of activity is occurring in the retail industry, with family-themed restaurants, convenience stores, and food-anchored retail centers dominating the market. Lease rates range from $25 psf for class A space to $10 psf for class C space, he says.
The city of Allentown has poured more than $50 million into downtown restoration in the past decade; now more than 230 shops and restaurants are located on or near historic Hamilton Street. Despite the downtown development, however, Cihylik believes that Allentown's retail industry will mellow in the coming years.
York, Lancaster, and Harrisburg, the state capital, dominate south-central Pennsylvania. Home of Pennsylvania Dutch country, Hershey chocolate, and Harley-Davidson, this region is marked by “conservative optimism,” says William Boben, CCIM, of High Associates in Lancaster. Driven by a location convenient to major roads and airports, the office market in south-central Pennsylvania is experiencing a “steady state of equilibrium,” Boben reports. Vacancy rates for class A space range from 5 percent to 8 percent and have risen slightly in the past three years due to heavy new construction. Properties with high-tech amenities such as DSL and fiber-optic connectivity are in high demand and will continue to be hot commodities, Boben says.
The market in the state capital is fairly stable, says Gary J. Rosenstrauch, CCIM, of Rothman, Schubert, and Reed Realtors Commercial Group. Class A and B office space is 90 percent to 95 percent occupied, but other space is readily available, he reports. New speculative construction appears to be slowing, Rosenstrauch says, but build-to-suit construction and buildings that are 50 percent preleased should drive the Harrisburg office market for the next year.
The economy in the Scranton and Wilkes-Barre region of northeastern Pennsylvania is booming, and the demand for industrial space slightly exceeds the supply, reports John T. Cognetti, CCIM, of Hinerfeld Realty in Scranton. Sales prices for industrial buildings are stable, he says, ranging from $15 psf to $25 psf for older properties to $25 psf to $30 psf for newer buildings.
Monroe County, also in the northeastern region of Pennsylvania, is a relatively immature industrial market, according to Spiros Bilianis, CCIM, of Coldwell Banker Commercial Phyllis Rubin Real Estate in Stroudsburg, the county seat. Therefore, newly available industrial space is almost immediately absorbed, leading to a 97 percent occupancy rate. The tight market has contributed to rising lease rates, which average between $4 psf and $7 psf. Bilianis foresees that “Companies increasingly will seek out properties that are fully developed,” in Monroe County. Therefore, “Ready-to-go sites that allow for quick turnaround will be the key to real estate success,” he says.
Harrisburg is experiencing significant construction of both build-to-suit and spec industrial buildings, reports James L. Helsel Jr., CCIM, of Helsel Realtors in Camp Hill. However, the glut of new construction has affected the occupancy rate, which, at 93 percent, has decreased from previous years. Helsel believes that the spec construction will slow in the next two years, but that the market will not dry up. Industrial lease rates in Harrisburg for existing properties range from $3.20 psf to $3.50 psf, and new facilities are being offered for $3.95 psf to $4.25 psf. Sales prices for large box warehouses average between $25 psf and $27 psf and seem to be stabilizing, Helsel says.
Great Salt Lake
Site of the 2002 Winter Olympics, Salt Lake City recently was named the most livable city in the Rocky Mountain region, according to Al Belt, CCIM, of Grubb & Ellis/Utah Realty.
Although its economy has flattened slightly in the past year, the capital of Utah should continue to see commercial real estate growth.
“The retail market remains strong and vibrant,” Belt reports. Vacancy rates hover around 5 percent, despite nearly 1 million square feet of space added to the market in 2000. He predicts that major infrastructure improvements, a growing population, rising affluence, and international exposure from the Olympics will help the retail market grow.
Diane F. Gordon, CCIM, of Colliers Commerce CRG predicts that “2001 is heading for a record year in office building sales.” Sales prices range from $100 per square foot to $140 psf, and “the build-to-suit market is beginning to make a significant impact to our market,” she says. At the end of 2000, the vacancy rate averaged 8.9 percent overall, with only 4.5 percent vacant class A space downtown, she reports.
In 2000, 494 new units were added to the multifamily market, resulting in a year-end vacancy rate of 6.3 percent, according to the Greater Salt Lake Apartment Report by EquiMark Properties. Mark Millburn, CCIM, CRE, of EquiMark reports that the vacancy rate should decrease even more in 2001; however, after the 2002 Olympic Games, vacancy in the downtown and central business district likely will rise as the media and sponsors move out of the housing built for them, he says.
Lease rates for industrial buildings under 100,000 sf have increased in recent years, while larger properties have seen lease rates decline, says Eli T. Mills, CCIM, of NAI Utah Commercial Real Estate. About 3 million sf were added to the market in 2000, bringing the total industrial market to 95.4 million sf. “Savvy developers who are bringing high-quality product into the market are reaping big rewards,” Mills says.