Despite demand for office space, no surge in construction
Unlike the warehouse market in Central Pennsylvania, where construction often begins before tenants are found, the start of a new commercial office building hinges almost entirely on having someone ready to occupy the space.
That trend is expected to continue even as office space becomes harder to find in the Harrisburg area.
Most of the recent office projects in the Harrisburg area have been build-to-suit developments — projects undertaken with a tenant in mind. One recent example is a medical office building being constructed at 815 Sir Thomas Court in Lower Paxton Township for Urology of Central Pennsylvania. Vibra Healthcare’s new headquarters in the WestPort Business Center in Lower Allen Township is another.
Even as existing office spaces fill up in an improving economy, build-to-suit construction is expected to remain the norm, according to CBRE Group’s Harrisburg team of Michael Curran and Jeremy Shyk.
Among other reasons, Central Pennsylvania has always had sluggish demand for new office construction and fairly stable rents, unlike larger cities where there is more construction and wider variation in rents, Shyk said.
Also, developers face a long and costly process to buy land and get a new project approved. Local developers don’t have much room for error, he said, so securing a lead tenant is key to construction.
CBRE also has seen more demand from companies looking to buy buildings to house their own operations, also known as owner-occupied buildings.
For example, Mid Penn Bank last year purchased 2407 Park Drive in Susquehanna Township to bring its Harrisburg-area staff together under one roof. That property includes a 30,000-square-foot building and two adjacent lots that will give the bank room to expand in the future.
In search of more space, Penn Credit Corp. last year announced it was moving its headquarters from Harrisburg to 2800 Commerce Drive, a 12-acre property with a 35,000-square-foot office building that straddles Susquehanna and Lower Paxton townships. Penn Credit is expanding the building.
Curran and Shyk said they expect companies will continue to prefer owning and occupying their own buildings as construction remains tight and higher-end properties, or Class A spaces, fill up. The Class A vacancy rate in the Harrisburg area in the fourth quarter of 2017 was 8.6 percent, down from more than 11 percent the previous year.
CBRE’s local team does not cover Lancaster and York counties in its research reports, so comparable data wasn’t available.
That said, technology continues to eat into the need for companies to have a lot of office space.
New lease deals tend to reflect that, Curran and Shyk said. It’s not uncommon for businesses today to allocate less than 200 square feet per employee, where they might have had 250 to 300 square feet in older offices.
It has also become more common for investors to take older office spaces, especially in cities like Harrisburg, and convert them to apartments or mixed-use properties.