Demand continues to exceed supply in the industrial segment of Lancaster County’s commercial real estate market, while the office and retail sectors are less busy but doing relatively well.
That’s according to a 2022 first-quarter review from Rock Commercial Real Estate, which tracks data from numerous sources.
In Lancaster County, industrial vacancy fell a sixth straight quarter and is now near 1%. That’s about three times less than the national average, the report noted.
The market is “super busy,” said Rock’s director of data services, Drew Steffens, as lack of inventory is sending sales and lease rates to historic levels.
It’s anticipated that low vacancy will continue the remainder of this year as demand stays elevated.
The construction pipeline could bring some relief; 1.05 million square feet is being built, and 57% of those projects are 230,000-250,000 square feet.
An additional 1.3 million square feet is proposed for development. Any industrial construction built on speculation builds tends to be sold or leased as soon as it’s finished, keeping the vacancy rate down.
Sale prices are up substantially over the last five years across Class A, B and C space, the report said. Assets between 50,000 and 100,000 square feet have seen prices rise 98.61% in that time.
“Though Class A product will typically fetch a higher price than Class C space, this increase is being felt equitably across all classes of buildings,” the report noted. The lack of industrial product in the 50,000- to 100,000-square-foot range has sent the average selling price from $3 million five years ago to nearly $6 million today.
One of the industrial transactions in the first quarter was 86,236 square feet at 1103 Ranck Mill Road, Lancaster Township, selling for $6.85 million. Ranck Mill Road Real Estate LLC was the seller and Ranck Mill Holdings LLC was the purchaser.
Also, 121,370 square feet at 3975 Continental Drive, West Hempfield Township, sold for $6.6 million. Scantron was the seller and Buckeye Corrugated Inc. was the buyer.
In the office market, vacancy dropped 32 basis points to 3.82%. The average unit size of signed office leases since 2017 has declined 67.84%, from 6,463 square feet to 2,078 square feet.
Units under 5,000 square feet accounted for 86% of leases in the first quarter, and 37% of vacant units are 5,000 square feet or less.
The report noted that the construction pipeline lacks depth, as Penn State Health Lancaster Medical Center in East Hempfield Township makes up 95% of new construction.
There is also 622,000 square feet of office space immediately available in Lancaster County.
Compared with pre-pandemic levels, lease rates remain elevated, averaging $16.07 per square foot among Class A and B product. Lancaster City and Greater Lancaster West are the submarkets producing the highest lease rates this quarter, $14-17 per square foot.
Steffens said Class A space is typically new construction, with a desirable location, parking and onsite amenities. Class B space tends to be in good condition but a little older and not as well appointed.
An example of a first-quarter office transaction is 7,441 square feet at 516 Running Pump Road, East Hempfield Township, which sold for $1.5 million. TRC Partners LP was the seller and Herij Real Estate Co. LLC was the buyer.
Also, Regency Square Executive Suite sold 10,000 square feet at 2148 Embassy Drive, East Hempfield Township, for $1,262,500 to Vitreoretinal Associates of Lancaster.
In the retail sector, vacancy remains under 4%. This segment is performing fairly well in Lancaster County, Steffens said. Going forward, “we’re going have to see effect of inflation” and other factors, such as interest rate hikes, supply chain disruption, labor shortages and skyrocketing energy costs.
The amount of new vacant square feet is increasing, which could be an early indicator of rising vacancy later this year.
Tenants are moving quickly on “well-priced, well-positioned” space, the report said. Online retailers are looking for brick-and-mortar space to showcase their brands, while redevelopment is planned to revitalize underperforming retail centers along the Route 30 corridor in East Lampeter Township.
“Demand continues to favor smaller unit sizes to minimize cost,” according to the report. “Business incubators and co-working spaces continue to thrive as a means for startups and established businesses to control real estate expense.”
For instance, shared kitchen space at the Crowded Cookhouse and Southern Market provide room to experiment for restaurateurs.
In the first quarter, automotive uses accounted for 54% of sales volume, including auto repair garages, sales lots and car washes.
For instance, West Side Exhaust LLC sold 6,000 square feet at 1929 W. Main St, Ephrata, to Zimmco Enterprises for $1.55 million.
“Auto was a safe place to go,” Steffens said, in Q1.
Paula Wolf is a freelance writer