Greater Reading Office Market Report by Bryan Cole
Written and compiled by Bryan Cole of NAI Keystone Commercial & Industrial, LLC
The 2011 Greater Reading Office Market experienced similar activity as the previous year; however unlike 2010 the market noted a slight positive absorption. This was mainly due to the majority of the tenants in the local market maintaining their space rather than reducing or relocating. The activity level was still there in the 1st thru 3rd quarters of 2011; however companies were nervous about making decisions on moving or relocating from their existing facilities. The positive absorption came from some tenants taking advantage of the market by extending their lease terms to take advantage of the lower base rental rates and tenant incentives and few slightly increasing their footprints.
These renewals included The Travelers insurance group who renewed their lease at 1105 Berkshire Blvd, Wyomissing which consisted of approximately 60,000 +/- square feet, along with STV Inc., who renewed their lease at 205 W. Welsh Drive in Douglassville, which was approximately 50,000 sf.
New developments slowed in 2011 with only a few facilities being built which includes the 33,000 sf. speculative project at The Wyomissing Corporate Campus and the Reading Hospitals newly built MOB in Cumru Township.
The 4th quarter 2011 into the 1st quarter 2012 experienced an extreme level of activity. There are approximately 200,000 sf. of new and existing tenants circulating the market; looking to move into the county or relocate from the existing facilities within the county.
Although the level of activity has jumped, there have also been recent press releases of large tenants vacating large blocks of contiguous space or looking to sub-lease their space. This includes the announcement of CNA looking to close down or downsize its Reading facility which contains approximately 260,000 sf., along with Teleflex marketing their 60,000 sf. for Sub-Lease at 1 Meridian Boulevard in Wyomissing, IMS Healthcare reducing their footprint locally, and Sovereign Bank continuing to try and sub-lease their 57,000 sf. office building on Berkshire Blvd.
Overall the end of year 2011 showed a slight decrease in Suburban Class “A” building Vacancies starting at 12.4% in late 2010 and closing at 12.2%, mostly due to a new build to suit for the Reading Hospital and Medical Group, along with companies increasing their footprints at 1 Granite Point, and 1105 Berkshire Blvd. Class “A” buildings have typically been a safe sector in the marketplace because of low inventory; however with new developments coming on-line, and companies still looking for lower rents the Class “A” sector has seen less demand. This will and has changed in 2012 with a great deal of the activity surrounding this type of product.
Class “A” rental rates in 2011 remained flat with rates ranging from $15.50 – $16.75 (Triple Net) on the high side; however there was considerable downward pressure on pricing within this segment.
The Class “B” sector experienced the same in 2011 as did Class “A”, starting at 13.6% and ending at 13.2%, however while vacancy rates decreased, rental rates has a slight increase. Base rental rates slightly increased within this sector ranging from $9-10 per square foot and tops out at $13-14 per square foot with gross rates coming in around $16-17 per square foot!
Downtown City of Reading has seen some new deals consummated, like the renewal of the United Way of Berks County and the Spanish Council of Berks County. However the market still remains flat due to these companies’ renewing leases rather than expanding their footprints. Buildings that have seen vacancy for some time, including 645 Penn Street and 501 Washington Street are starting to show some signs of hope due to new management and ownership changes taking effect. Owners and tenants are continuing to struggle with high parking costs and security concerns, which are continuing to be addressed by a committed City Administration.
Downtown City of Reading vacancy rates continue to increase in late 2011 with rates rising 20.70% to 21.00% in Class “B” Product with much of the vacancy continuing to surround large blocks of contiguous space. This also includes approximately 20,000 sf. of vacant space which was not accounted for in 2010’s numbers at The Madison Building located at 400 Washington Street.
2012 downtown vacancy rates will have a major negative jump if CNA follows thru with their plan to vacate the 260,000 sf. facility located at 401 Penn Street. Even if CNA decides to maintain its presence they are still only occupying 80,000 of the 260,000 sf., so the impact is going to be felt regardless. A positive note is that 525 Lancaster Ave, Reading has been purchased by a multi-family developer who has decided to redevelopment from office to apartments. This will eliminate a 110,000 sf. office building which has been vacant for a number of years.
The City of Reading and economic development groups have been working hard to improve and revitalize Downtown which shows in the number of projects underway and/or completed. The new IMAX Theater and the completed addition to the Reading Eagle Headquarters in the CBD are welcome entrants to the market and kick off a multi-million dollar main street corridor project that includes a new $67 million Doubletree hotel and garage project across from the Sovereign Entertainment and Expo Center. This will help attract a more vibrant restaurant and entertainment segment with increased amenities and ultimately assist to bring tenants back downtown while decreasing vacancy rates and increases in the tax base.
2012 is showing signs of hope, with new tenants entering the market place, and rental rates continuing along a steady course.
Deals will continue getting done because landlords are reacting to current market conditions, which means companies are getting favorable incentives, such as introductory rates, rent abatements and additional tenant improvements. Also, landlords are now offering tenant improvements and incentives to keep their existing tenants.
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Bryan E. Cole | NAI Keystone Commercial & Industrial, LLC
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