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Downtown Reading Office Market Overview The Greater Reading Downtown Office Market ended 2012 with a vacancy rate for Class A Office buildings at 22.96%. There was no change in vacancy rates from 3rd quarter 2012; however it was a significant increase from the same period 2011. The average rental rates slightly decreased from 3rd to 4th quarter 2012 at $14.00 per square foot Modified Gross to $13.50 per square foot Modified Gross. The largest additions to the overall vacancies in Class A facilities were at 401 Penn Street and 201 Penn Street, which caused Class A vacancy rates to sky rocket from 2011 into 2012. Due to the current economic climate and overall interest in the City, these buildings remain vacant and are still taking a toll on the overall vacancy rate within Downtown. The Class B Downtown office market ended 2012 with a vacancy rate of 22.08%. There was no change in vacancy rates from 3rd quarter 2012, and it was a slight increase from the same period 2011. The average rental rates dropped from $11.50 per square foot Modified Gross in the 3rd quarter 2012 to $10.00 per square foot Modified Gross in 4th quarter 2012 this is also a slight decrease to the rates from the same period 2011.
Overall Vacancy Rates for Class C buildings remained unchanged throughout 2012, however various buildings previously tracked as Class B buildings were changed to Class C buildings, due to re-evaluating the assets and conditions.
Tenant perspective: (As a Tenant Representative) The Greater Reading market has experienced a high level of interest within the 1st quarter 2013, although activity is high and deals are steadily coming forward the A and B product is still offering incentives/concessions which have allowed Tenants to continue to capitalize on past market conditions. However as we moved forward in 2013, landlords have begun as expected to raise rates, and limit the concessions as they negotiate with many more details than before. Tenants should begin to negotiate any leases that are within 18 months of expiration. This allows for enough room to negotiate and capitalize on the current conditions. Although the markets are improving and landlords will begin to lock in better terms, we feel the market will continue to be a Tenants Market into the late stages of 2013 based on current vacancies and leasing activity.
Landlord perspective: (As a Landlord Representative) Greater Readings recent activity will sway some landlords to think the market has completely turned around. Be cautious as we feel well into 2013 the market will maintain its Tenant Market status. Rates have been low over the past few years, so by offering free rent on the front end while maintaining higher base rates will not only provide tenants the ability to get into the space on a lower initial cost for year 1, it will allow landlords to maintain higher valuations on their assets since most Free Rent is outside the term. This allows landlords to still get effective 3, 5, or 7 year terms while limiting their exposure long-term. Interest rates will probably remain relatively lower well into 2013. This will allow tenants to finance TI themselves at sometimes better rates then landlords. This makes the Free Rent on the front end even more appealing to some tenants.
By Bryan Cole, NAI Keystone Commercial & Industrial, LLC Office & Medical Real Estate Specialist www.Bryan-Cole.com or www.WyomissingOfficeSpace.com