PA’s Commercial Market: A ‘Bright Spot’ in the Economy?
NAR Economist David Lereah recently called the U.S. commercial real estate market a “bright spot” in the economy. Trends in Pennsylvania seem to reflect that notion.
“The strength of the commercial market is improving across the state,” says Paul Garvey, chair of PAR’s Specialized Practice Issues Subcommittee. “As a result, we’re seeing new construction starting in virtually every facet of the market.”
For example, rental prices on office space in the Philadelphia region have begun to inch up, reflecting the market’s demand, according to Garvey. Garvey, senior director at Cushman & Wakefield of Pennsylvania in Philadelphia, says, “Overall employment trends in Pennsylvania have been positive. The market is stabilized and rental prices have been creeping up as a result.”
On the other side of the state, the market has been relatively busy, according to Jerry Speer of Equity Real Estate in Pittsburgh. “Pittsburgh has always been a market that has no great ups and downs,” Speer explains. “I visit other areas in the state like Allentown and they’re having a boom. Pittsburgh has had a gradual increase, two to three percent, for years now and we haven’t broken out of that trend,” he adds.
There are some important factors that affect commercial real estate, for example, rising oil prices.
Says Garvey, “There is no hard science on this but companies need to operate and the cost of utilities is going up. More corporations are looking at a building’s LEED certification (a recognized standard for measuring building sustainability). The increase in fuel prices makes investing in green buildings more economically viable. The Comcast Tower in Philadelphia is a good example,” Garvey says. Rising fuel costs are also driving construction prices up, he said.
The multi-family market has seen a tempering in the last several months, Garvey notes. “Apartment prices were hitting an all time high until the Treasury starting inching up. A lot of condominiums are in an overheated market where the economic value of the property may be driven up by the trading that’s being done,” he says.
Andrew Liverman, research associate at Cushman & Wakefield, adds, “Some markets, particularly in Florida, Los Angeles and Washington, D.C., saw a record number of condos built and prices reached a level that Philadelphia and the surrounding suburbs haven’t seen.”
Speer, a past PAR president, notes the Pittsburgh area is seeing higher vacancy rates in multi-family housing. “The value of the investment property is directly related to its net income,” he notes. “That means as expenses such as insurance rates, taxes, water and sewage go up and the occupancy rates go down or remain the same, the income declines. We’re also seeing a lot of new construction going up and a lot of tax dollars are subsidizing the new construction.”
Retail markets are expanding, particularly in areas where higher-end housing that serves more affluent demographic groups is being developed. “The Philadelphia region has seen a real spike in retail districts that reflect these demographics,” Garvey says. Consumer sales are still healthy so the malls continue to trade on investment, he added.
Speer also notes a rise in retail in the Pittsburgh area as well, although he thinks it “could be doing better.”
“Real estate is both regional and local,” notes Liverman. “It’s tough to call an entire market. You have to look at a specific area or asset class but that’s what makes real estate so interesting. Every market is unique and some perform better than others.”