1st Quarter 2013 – Office Market Report

Greater Reading Suburban Office Market Overview

1st Quarter Office Report

By Bryan Cole

Suburban Office Market Overview

The Greater Reading Suburban Office Market ended the first quarter 2013 with a vacancy rate for Class A Office buildings at 17.4%.  This is a decrease in vacancy rates from 4th quarter 2012 and an increase in vacancy from same period 2012.   The average rental rates increased to $16.00 – $21.50 per square foot Modified Gross which is an increase in the rates from the same period 2012.

Deals of primary focus within Class A building sector were the 13,268 sf. Lease to Sunoco Logistics at 1 Meridian Blvd, which was a relocation and expansion for the already Wyomissing based organization, and the new VA Medical Center lease that was signed at 2762 Century Blvd. these leases along with a few other assisted in reducing vacancy rates and increasing overall absorption.

The Class B Suburban office market ended the first quarter of 2013 with a vacancy rate of 18.67%.  This is a slight decrease in vacancy from 4th quarter 2012 by less than one-quarter percent, however it is an increase from the same period 2012.   The average rental rates had an increase from 4th quarter 2012 to 1st quarter 2013 at $12.50 – $16.50 per square foot modified gross opposed to that of rates from the same period 2012 which was $11.00 – $16.50 per square foot.

Deals of primary focus within the Class B building sector were the new leases at 975 Berkshire Blvd. of 5,300 sf, and 2001 State Hill Road of 4,000 sf.  The activity level for second generation Class B space has greatly increased within the quarter which doesn’t seem to be slowing down.

And the Class C Suburban office market sector ended the 1st quarter of 2013 with a vacancy rate of 11.97% which was an increase from the 4th quarter 2012.

Our outlook for the office market going into 2nd quarter 2013 is very optimistic with activity levels at new highs within the market place and four new transactions pending totaling 70,000 sf. of new lease deals all of which NAI’s Bryan Cole is handling.

Tenant perspective: (As a Tenant Representative)

The Greater Reading market has experienced a high level of interest within the 1st quarter 2013, although activity is high and deals are steadily coming forward the A and B product is still offering incentives/concessions which have allowed Tenants to continue to capitalize on past market conditions.

However as we moved forward in 2013, landlords have begun as expected to raise rates, and limit the concessions as they negotiate with many more details than before.

Tenants should begin to negotiate any leases that are within 18 months of expiration.  This allows for enough room to negotiate and capitalize on the current conditions.

Although the markets are improving and landlords will begin to lock in better terms, we feel the market will continue to be a “Tenant’s Market” into the late stages of 2013 based on current vacancies and leasing activity.

Landlord perspective: (As a Landlord Representative)

Greater Reading’s recent activity will sway some landlords to think the market has completely turned around.  Be cautious as we feel well into 2013 the market will maintain its “Tenant Market” status.

Rates have been low over the past few years, so by offering free rent on the front end while maintaining higher base rates will not only provide tenants the ability to get into the space on a lower initial cost for year 1, it will allow landlords to maintain higher valuations on their assets since most “Free Rent” is outside the term.  This allows landlords to still get effective 3, 5, or 7 year terms while limiting their exposure long-term.

Interest rates will probably remain relatively lower well into 2013.  This will allow tenants to finance TI themselves at sometimes better rates than landlords.  This makes the Free Rent on the front end even more appealing to some tenants.

To Download the Full Report please visit www.NAIKeystoneMembers.com or www.Bryan-Cole.com and register for our market reports.

By Bryan Cole, NAI Keystone Commercial & Industrial, LLC

Office & Medical Real Estate Specialist

www.Bryan-Cole.com or www.WyomissingOfficeSpace.com