Greater Reading Office Market Overview End of 1st Quarter 2017 Office Report By Bryan Cole, SIOR

Suburban Overview

The overall Suburban Office Market was relatively flat thru the 1st quarter of 2017 with vacancy rates for Class A Office product at 5.56% which is a higher than Year End 2016 and a few percentage points higher than the same period in 2016.  There were several lease renewals which were good for the market, however it did not attribute to the absorption rate as most leases were renewed as is with little to no expansions.

The total proposed sites tracked, equates to 93,100 sf. which when added to the existing product and sublease space pushes the vacancy rates up to 8.22%.

The average rental rates also remained flat from the previous quarter at $19.50 – $24.50 per square foot modified gross, however they are a few dollars per square foot higher than the same period in 2016.

The Class B office sector continues to be the driver of most absorption within the County, however it also remained flat in the 1st quarter of 2017.  The overall vacancy rates increased to 15.01% from the end of 2016 which is exactly where the rates were in the same period of 2016.

The rental rates were flat from the end of 2016 to the end of the 1st quarter of 2017 with rates in the $15.50 – $19.50 per square foot modified gross range.  However, the rates are much higher than the same period in 2016.

The 2017 Office market as described in the end of year 2016 report seems to be poised for strong growth in the Financial Sector and the Medical Sector.

The description from the End of Year 2016 report remains true:

The financial sector has seen significant growth locally with various financial institutions looking to increase their footprints and amenities to attract a younger workforce and embrace the change in technology.  The Medical Sector is another part of the industry which continues to see growth.  Several smaller, less efficient medical buildings have been placed on the market for sale or lease, however these facilities are becoming outdated and too small to benefit or attract the larger health systems.  The growth pattern seems to indicate larger, better located facilities, with easy access to customers and better technology.

Overall activity was concentrated on Lease Renewals rather than new deals.  This is a common pattern in the 1st quarter as leases expiring towards the middle or end of the given year result in early negotiations.

Downtown Overview

The Reading Central Business District (CBD) ended the 1st quarter of 2017 with a vacancy rate of 5.02% which is slightly higher than the same period in 2016.  As previously outlined, we currently track eight (8) buildings which are classified as Class A Office Buildings in Downtown Readings CBD.  These variables are location, infrastructure, and overall appeal.  The Reading Class A CBD is below National Averages for CBD related markets, as well as the Philadelphia CBD.

The Class A sectors rental rates remain unchanged from the end of 2016 at $11.00 – $15.50 psf. modified gross.

The Class B Downtown Office Market ended the 1st quarter of 2017 with a vacancy rate of 27.89%.  This was a slight decrease in vacancy rates from the previous quarter.  The vacancy rate is slightly higher than the same period in 2016.  The average rental rates for downtown product is very low compared to the other CBD markets at $8.50 – $12.00 per square foot modified gross.

As outlined in the 2016 End of Year Report and as shown below remain true:

The positive spin is that there are a few local investors who have been trying to resurrect some of the outdated facilities, and the hope is they are successful at attracting new companies that can take advantage of the workforce and bring some business back to downtown.  The City and the local business leaders need to continue to work together to make this a reality; and remove the obstacles to help business succeed in downtown.  Other nearby markets, such as Lancaster and Allentown have had local companies take larger buildings and convert them into residential and higher end updated office facilities.

Commercial Space Overall

As I have mentioned in every quarterly article that I have written, the key elements that will be critical to all sectors of commercial real estate, is the need to work with dedicated, educated, and willing township officials and boards that can assist in getting approvals expedited and incentives obtained.  This will be an absolute critical element in all deals moving forward.  Greater Reading is fortunate to have these types of organizations and people in place.  The hope is that municipalities will learn the successes from one another and incorporate that into their areas.  Berks County is also fortunate to have strong local business leaders that are willing to spend their time and resources to assist their respective areas, and it is critical that municipalities lean on those individuals for guidance.

Check for a full and comprehensive Office Market Report.

By Bryan Cole, SIOR | Principal

NAI Keystone Commercial & Industrial, LLC |