Building Classifications; Class A, Class B, Class C

Building Classifications;  Class A, Class B, Class C

When considering office space, tenants will find that office and industrial buildings are generally classified as being either a Class A, Class B, or a Class C building. The difference between each of these classifications varies by market and class B and C buildings are generally classified relative to Class A buildings. Building classifications are used to differentiate buildings and help the reporting of market data in a manner that differentiates between building types. That said, there is no definitive formula for classifying a building, but in the general characteristics of each are as follows: 

Please see http://bryan-cole.com/MarketIntel.html for market information broken down by Class of Buildings.

The Classifications below are how we typical classify buildings in the local and regional market.

Class A.  These buildings represent the highest quality buildings in their market. They are generally the best looking buildings with the best construction, and possess high quality building infrastructure. Class A buildings also are well-located, have good access, and are professionally managed.

Class B.
Class B buildings are generally a little older, but still have good quality management and tenants. Often times, value-added investors target these buildings as investments since well-located Class B buildings can be returned to their Class A glory through renovation such as facade and common area improvements. Class B buildings should generally not be functionally obsolete and should be well maintained.

Class C. The lowest classification of office building and space is Class C. These are older buildings (usually more than 20), and are located in less desirable areas and are in need of extensive renovation. Architecturally, these buildings are the least desirable and building infrastructure and technology is out-dated. As a result, Class C buildings have the lowest rental rates, take the longest time to lease, and are often targeted as re-development opportunities.

The items above are general guidelines to building classifications.  There are no formal standards when classifying a building.  A Class A Building in Reading may not necessary be a Class A building in Philadelphia.  One of the most important things to consider about building classifications is that buildings should be viewed in context and relative to other buildings within the sub-market.

When considering a classification of an Office or Industrial Property keep the following items in mind.

Office Buildings
Visual Appeal
Location
Access (Major roadways, public transportation)
Data and IT Infrastructure
Elevator quantity and speed
Construction, Common Area Improvements
Parking
On-site or nearby amenities (dining, financial, hospitality, dry cleaning, etc.)
Ceiling Heights
Backup Power
HVAC Capacity
Floor load capacity
Security and life safety infrastructure
Lighting

Industrial Buildings
Visual Appeal
Location
Access (Major roadways, public transportation)
Infrastructure
Docks
Overhead Door Access
Column Spacing
Ceiling Heights
Amenities (Battery Chargers, Wash Bays, etc.)
Office Space
Trailer Parking – Car Parking
Water and Sewer Capacity
Construction, Common Area Improvements
Backup Power
HVAC Capacity
Floor load capacity
Security and life safety infrastructure
Lighting

For More Information please contact:

For More Information about Local News, Market Intel, or Commercial Real Estate Opportunities.  visit www.Bryan-Cole.com

Bryan E. Cole | Team Leader
NAI Keystone Commercial & Industrial, LLC
direct: 610-370-8502
Bcole@naikeystone.com

Check out my new website at www.Bryan-Cole.com

NAI Keystone is a full service commercial and industrial real estate firm located in Reading PA; representing buyer, tenant, and landlord representation throughout Pennsylvania.

Greater Reading Office Market Report End of Year 2010 Report

 

By Bryan E. Cole

The 2010 Greater Reading Office Market was much more active than the previous year although vacancy rates still increased throughout the local market. This was due to the majority of the deals taking place being from within the county. The office market continued to experience both companies downsizing along with relocating their existing offices to take advantage of the decreasing rates and increase in incentives.

The good news is that there were a number of companies who increased their footprints including The Reading Hospital and Medical Group, UGI, and C&L Group. This is good to see in a market which has experienced less than favorable absorption rates within the past few years. Unfortunately due to a number of companies closing operations locally the absorption rate for 2010 still maintained its negative status, however it could have been much worse if those companies did not expand.

The end of year 2010 showed a slight decrease in Suburban Class “A” building Vacancies starting at 12.5% in late 2009 and closing at 12.4%, mostly due to a new build to suit for the Reading Hospital and Medical Group, along with companies increasing their footprints at 1 Meridian Blvd in Spring Ridge and The Wyomissing Corporate Campus in Wyomissing. 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 looking for lower rents the Class “A” sector may see less demand, greater competition and potentially more vacancy.

Class “A” rental rates in 2010 remained stable 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 issues in 2010 as did Class “A”, starting at 13.7% and ending at 13.6%, however while vacancy rates decreased, rental rates remained steady. Base rental rates within this sector range from $8-9 per square foot and tops out at $12-13 per square foot with gross rates coming in around $15-16 per square foot! Recent absorption has come mainly from expansion of operations by companies already in the market.

Downtown City of Reading, although has seen some new deals consummated, like the Greater Reading Chamber of Commerce, Greater Berks Development Fund and Berks Economic Partnership leasing space at 201 Penn Street, the market remains flat due to these companies coming from existing space within the City. 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 2010 with rates rising 15.6% to 20.7% in Class “B” Product with much of the vacancy continuing to surround large blocks of contiguous space.

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. The new IMAX Theater and the nearly 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.

2011 is showing some 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.

Check out my blog at www.Bryanecole.wordpress.com for more market information and updates within the Greater Reading Office Sector along with checking our website at www.Bryan-Cole.com

Written and compiled by Bryan Cole of NAI Keystone Commercial & Industrial, LLC

www.Bryan-Cole.com | www.naikeystone.com | 610.779.1400 | Bcole@naikeystone.com

Turning Your Leased Industrial Facilities into a Profit Center

By George Livingston and Christie Alexander of NAI

According to current economic indicators–and most economists–U.S. business and industry will likely show measurable signs of improvement in 2011. That means the window is narrowing on the opportunity for industrial firms to recognize significantly improved revenue from their leased facilities.

That may seem counter-intuitive at first. But the current economic cycle is rife with opportunity for successful enterprises with positive credit history. Your landlord is loath to admit it, but the fact is, your company–more specifically your leasehold obligation–is one of your landlord’s principal assets right now.

Nationwide, commercial properties–including the facilities you occupy now–have decreased in value as a result of the real estate decline and the accompanying recession. With regional and local market vagaries, all properties have suffered. As undercapitalized companies downsized or folded, vacancies spiked and rents from remaining tenants have not made up the difference.

That means the capital value of your monthly rent payment–the relative proportion of your landlord’s mortgage payment or ROI covered by your payment–is substantially greater than the numerical dollar value. Your landlord and your landlord’s lender are both eminently aware of this.

To the extent that you can turn that value differential into cash–or concessions–you can improve your company’s cash position.

But beware the window is closing. As the economy improves and more companies expand, the value differential will evaporate.

If your lease is due for renewal this year, current market conditions are even more favorable. Landlords will agree to substantial concessions to retain a good tenant. Even if your lease is not due for renewal soon, negotiate now and offer to extend the term.

A reputable offer of terms and conditions from a new landlord will inevitably lead to stronger concessions from your current landlord.

From your current landlord’s perspective, the only meaningful differential is an estimate of your relocation costs versus his cost to lease the space to a new tenant.

Well-informed–and well-represented–tenants are cutting very good deals now with pragmatic landlords, fixing advantageous rates, lengthening lease terms and negotiating improvements and upgrades.

In the current market cycle, most companies will benefit from lease negotiations conducted with the expertise of a good tenant representative. Almost every commercial property firm today retains associates whose specialty is representing the interests of tenants.

Such specialists have the capacity to research properties, landlords and local market conditions, and know which concessions are most reasonable.

They also know the conditions landlords face. A newly built industrial property may have minimum lease requirements imposed by lenders, and thus might be more flexible granting improvements or upgrades than lower lease rates.

Landlords of older properties may be in a better position to wait out the recovery and thus be less inclined to negotiate generous concessions of any sort. A good tenant representative will know the inside story.

The end result is the same. Time is of the essence. Act now and you can lock in rates and terms that fit your business plan and substantially improve your bottom line.

 

For More Information please contact:

For More Information about Local News, Market Intel, or Commercial Real Estate Opportunities.  visit www.Bryan-Cole.com

Bryan E. Cole | Team Leader
NAI Keystone Commercial & Industrial, LLC
direct: 610-370-8502
Bcole@naikeystone.com

Check out my new website at www.Bryan-Cole.com

NAI Keystone is a full service commercial and industrial real estate firm located in Reading PA; representing buyer, tenant, and landlord representation throughout Pennsylvania.

Board gives push to zoning change

 

By The Reading Eagle Company

The Perry Township Planning Commission is recommending that the township rezone a 15-acre parcel at Routes 61 and 662 to commercial from light industrial.

The 4-1 vote Wednesday begins to pave the way for a retail complex on the northeast corner of the intersection. Edward J. Walsh IV of McCarthy Engineering Associates, West Lawn, said Shoemakersville developer Eugene Bell hopes to build several stores and retail shops at the northeast corner.
The other corners are zoned commercial and have restaurants and a convenience store with gas pumps.

Walsh said Bell owns 38 more acres and they would remain zoned light industrial.

The land is adjacent to a residential development, proposed by Bell, of more than 100 units.

Planner Nancy A. Rogers voted against the rezoning, but did not say why. Planners Richard A. Furnanage and Alton Rohrbach were not present.

In other business, township Engineer Joseph H. Body said that preliminary plans for a commercial center just west of Route 61 are not ready for approval.

Body said a proposed design for the 16-acre parcel, just north of the former Boyer’s Food Market and near the Shoemakersville pool, needs to show improved access for tractor trailers.

“If people can’t get in, the business will lose out,” he said.
Grant T. Smith, senior project manager with Stackhouse Bensinger Inc., Sinking Spring, said that the plan design would be revised.

Smith said the Federal Emergency Management Agency recently approved the building of a planned driveway across a stream tributary just east of Market Street.

Owner-developer Scott G. Homel of Jenkintown, Montgomery County, said he has reserved sewage treatment capacity at the Shoemakersville sewage treatment plant and wants to proceed with the project as soon as possible.

A convenience store and pharmacy are planned on the tract, he said.

For More Information about Local News, Market Intel, or Commercial Real Estate Opportunities.  visit www.Bryan-Cole.com

Bryan E. Cole | Team Leader
NAI Keystone Commercial & Industrial, LLC
direct: 610-370-8502
Bcole@naikeystone.com

Check out my new website at www.Bryan-Cole.com

NAI Keystone is a full service commercial and industrial real estate firm located in Reading PA; representing buyer, tenant, and landlord representation throughout Pennsylvania.

East Penn acquires former Caloric site

By The Reading Eagle Company

East Penn Manufacturing Co. Inc., near Lyons, has purchased the Maulfair Medical Center building at 403 N. Main St., Topton.
According to documents filed with the Berks County recorder of deeds, the price paid was $1.95 million.

Daniel R. Langdon, East Penn’s president, said the property is contiguous to the company’s distribution facility.
Langdon said East Penn likely will use the property for office space, but has no firm plans for it at this point.

The property, on about two acres, was a part of the former Caloric Corp. , which closed in July 1991 after more than a century in the borough. Caloric was an appliance manufacturer.

Langdon said East Penn over the years has acquired most of the former Caloric property from Raytheon Corp., which bought Caloric in 1967.

“We have substantially all of it,” Langdon said, adding that East Penn made its initial purchase of Caloric property in 1996.

That was the same year that Conrad G. Maulfair Jr. and his wife, Coleen M. Maulfair, of Maulfair Medical Center purchased the Main Street property.

It also was the same year that the Department of Environmental Resources released Raytheon from liability following its cleanup of the site.

In the 1990s following the plant shutdown, Raytheon spent more than $7 million on the cleanup.

Contaminants included chromium deposits in the soil and PCE, or perchloroethylene, in the groundwater. Both are considered cancer-causing chemicals. Underground storage tanks also were removed.
Kevin Sunday, a spokesman for DEP’s southcentral regional office, said the property was cleared for groundwater, as well as for metals (including chromium and copper) and chlorinated solvents that had been in the water.

Langdon said East Penn conducted an environmental study of the property before buying it.

Coleen Maulfair said the medical center is still in the Main Street property and is leasing space from East Penn.

For More Information about Local News, Market Intel, or Commercial Real Estate Opportunities.  visit www.Bryan-Cole.com

Bryan E. Cole | Team Leader
NAI Keystone Commercial & Industrial, LLC
direct: 610-370-8502
Bcole@naikeystone.com

Check out my new website at www.Bryan-Cole.com

NAI Keystone is a full service commercial and industrial real estate firm located in Reading PA; representing buyer, tenant, and landlord representation throughout Pennsylvania.

Commercial Real Estate Markets Begin Long, Slow Recovery – NAI Global Issues 2011 Global Market Report

NAI Global Issues 2011 Global Market Report; 25th Annual Volume Provides Review/Forecast for 217 Commercial Property Markets Worldwide

The commercial real estate industry struggled through the start of 2010, but by year’s end there were signs that conditions worldwide had stabilized and were beginning to improve, according to the 25th annual Global Market Report released today by NAI Global.

After a prolonged, challenging period marked by frozen credit, sidelined investors, stalled development, rising vacancy rates and declining rental rates and property values almost anywhere you turned,  improvement, albeit modest, is expected in just about every market sector and geography in 2011.

Much of the activity in 2010 was driven by corporate space users taking advantage of a tenants’ market worldwide to lock in low effective rental rates and reduce their overall occupancy costs. Office rental rates in some markets have fallen more than 30% from their mid-2007 peak. This activity is expected to increase as economic growth returns, further unleashing significant pent-up demand.

“Although 2010 was another very challenging year for the industry, we began to see clear signs that the global economy and commercial real estate markets had stabilized and were beginning to improve with a noticeable pickup in transaction volume around the world,” said Jeffrey M. Finn, President & CEO of NAI Global. “Companies around the globe are taking advantage of the current market, extending or renegotiating leases, securing investment properties, disposing of underperforming assets and finalizing plans for growth in the next 24 months. We expect a much more active market for buyers, sellers and occupiers as conditions continue to improve.”

The investment market also showed signs of life in 2010 as credit markets thawed. The massive wave of foreclosures that was predicted heading into 2010 never materialized as financial institutions opted to extend or re-work troubled loans. However, the sidelines are growing crowded with REITs, private equity and institutional investors who have amassed a tremendous amount of capital and are actively looking for deals, said Finn. Commercial real estate investment should also get a boost from new investors drawn to real estate in pursuit of yields and further enticed by record low interest rates.

Markets across the U.S. are showing signs of recovery, as are parts of Asia, Europe and Latin America. But financial collapses in countries like Greece, Iceland and Ireland are endemic to the rocky global recovery. For every Brazil and China, countries that are showing signs of strong growth, there are contrary markets like Spain that are showing signs of a prolonged recession.

“The real estate market’s near-term future is all about the strength and timing of the economic recovery,” added Dr. Peter Linneman, NAI Global Chief Economist and Principal at Linneman Associates. “Job growth will be key, as a recovery without jobs does not fill much space. As jobs are created, nearly 2 million new households will form and consumer confidence will rebound, leading to a rebound in corporate profits and economic stability. The momentum building at the end of 2010 points to a hopeful outlook for 2011.”

 

NAI Global is the premier managed network of commercial real estate firms and one of the largest real estate services providers worldwide.  Headquartered in Princeton, New Jersey, NAI Global manages a network of 5,000 professionals and 350 offices in 55 countries.  Now in its 25th year, NAI’s Global Market Report offers insider insight and perspective on market conditions reported by NAI experts on the ground in over 200 property markets worldwide. To obtain a copy of the full report, contact Bcole@naikeystone.com.

Select U.S. Markets Highlights

Class A Office space in the CBD, especially hard hit during the recession, saw leasing activity increase in 2010 as space users took advantage of a tenants’ market to lock in low rates or upgrade from lower-quality space. While not yet a cause for celebration, it was enough to shave a half-point off the national average vacancy rate for downtown Class A office space, which declined from 13.8% in 2009 to 13.3% in 2010 after rising almost 35% the previous year. The national average rental rate for Class A space in the CBD slipped 14.1% from $37.11 in 2009 to $32.51 in 2010, after falling more than 24% the previous year.

The nation’s retail markets also appear to have stabilized. While some markets still struggle to fill big boxes vacated by national chains, others have seen new entries and local retailers upgrading to better locations. The national average vacancy rate for downtown/CBD retail space stood at 8.2% in 2010, down from 8.9% in 2009, while rents slipped from $39.90 in 2009 to $39.79 in 2010.

Industrial markets appear to be on the mend. While demand for weak warehousing space continues to be weighed down by weak consumer demand, the market has benefitted from a diminishing pipeline of new construction. Vacancy rates for bulk warehouse space stood at 10.7% in 2010, down from 10.9% in 2009. Rental rates slipped from $4.60 in 2009 to $4.55 in 2010.

Atlanta: The office market has begun to gradually rebound. Leasing activity has increased, but this activity is dominated by consolidation and downsizing, so the activity does not translate to lower vacancy. There has been a noticeable increase in the total industrial leasing and sales activity and a decrease in the amount of negative net absorption over the last several years. The retail market will continue to adjust itself with some vacant centers that were ill-conceived. Vacancy rates are high in many areas and rent adjustments downward continue to press landlords.

Boston: Downward velocity in the office market appears to be slowing. Vacancy rates increased to 14.1% and Class A rents decreased to $32/SF. The industrial market has been slowed by the recession, but has not seen a dramatic rise in vacancy. The retail market did not experience much change in market conditions from 2009 to 2010.

Chicago: The office vacancy rate, on the rise for two years, leveled off at 17% in the second half of 2010. New construction and redevelopment projects will remain sidelined until some of the more than 22 million SF of vacant space begins to be steadily absorbed and demand returns. Industrial vacancy rates peaked at 12% but improved in the second half of the year.

Dallas-Fort Worth: Office supply exceeds current demand, making it a tenants market with a vacancy rate of 20%. There is a marked increase in absorption and occupancy rates should increase significantly in 2011. Dallas industrial vacancy stands at 12.5%, as tenants maintain the upper hand. Speculative industrial starts could be seen by the end of 2011. The Fort Worth retail market can expect to see stabilized vacancy by the first quarter of 2011.

Los Angeles: Vacancy rates for new office space remain above 30%. Rental rates are still declining for Class A and Class B space.  Industrial vacancy rates have fallen to 8.6% and rental rates continue to soften across the board. Malls and community centers experienced a small increase in rents, and discount retailers and quick-serve restaurants are the most active in the market. Outlet malls also experienced strong tenant interest; these centers maintain very low vacancy rates and strong rental rates.

Miami: The CBD and several submarkets are experiencing 20% vacancy rates in office space, as most large tenants have relocated or renegotiated favorable terms in premier buildings. The industrial market is improving with large blocks absorbed, including a 342,000 SF transaction. Retail demand is rebounding as consumer spending increases. Despite store closings, supply is in balance because of barriers to entry.

Washington, DC: The nation’s capital is its strongest office commercial real estate market. It continues its track to recovery propelled by federal government activity in 2010. New York-based restaurant operators saw opportunity in the market and targeted high-traffic venues around Verizon Center in Chinatown.

Select Global Market Highlights

Asia-Pacific Region: Asia is leading the global economic recovery. Asia rebounded swiftly in 2009 and into 2010. Asian region real GDP is expected to grow 7.9% in 2010, driven by better than expected exports and strong private demand. 2011 GDP growth is projected to be 7.3%. Expect continued strong growth in the industrialized markets in East Asia, including Hong Kong, Taiwan and South Korea. Improved investment, healthy consumer spending, robust exports and industrial production will propel growth. Despite measures to cool the China property market and slow credit growth, China grew at 11.1% in the first half of 2010 and is expected to grow at 10% for the year.

Canada: The Canadian economy, led by exports and a strong commodity cycle, performed well through 2010. GDP growth is expected to hit 2.3% in 2011, tempered by a modest recovery in the U.S. The economy has gained back all the jobs lost over 2008 and 2009, but unemployment remains high at 8%. Modest employment growth is forecast for 2011. Land prices firmed in 2010. Cap rates and interest rates declined slightly. And transaction volume will remain slow due to the low supply of good quality product.

Europe: Europe mounted a modest recovery in 2010, with European GDP growth within the Euro zone improving from -0.4% in 2009 to 1.7% in 2010. However, growth is uneven across the region and is projected to be only 1.1% in 2011. The more export-oriented economies such as Poland, Germany, France, The Netherlands and Sweden are expected to recover ahead of the remainder of Europe. Meanwhile, Portugal, Italy, Ireland, Greece and Spain, the primary concern in early 2010, appear to be in a prolonged recession. European real estate markets will remain challenging in 2011, though continuing low interest rates may balance out some of the adverse market pressures. The fiscal squeeze will reduce inflationary pressure, allowing central banks to slowly raise interest rates.

Latin America & the Caribbean: The Latin America region witnessed remarkable growth in 2010, driven by strong domestic demand, healthy exports of raw materials to Asia (particularly China), and increasing demand due to the modest recovery in the U.S. The region also benefitted from an increase in domestic investment after years of off-shore investment. Latin America is expected to continue its strong growth in 2011, and the Caribbean is expected to begin its recovery as tourism rebounds due to improved economic conditions around the globe.