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