PG Commercial Real Estate – Commercial Realtor Montgomery County, PA and Greater Philadelphia Region

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How does the Commercial Real Estate Industry WorK?

Do you know how the Commercial Real Estate industry works, aka CRE? Here is a quick education if you are considering to rent, lease or purchase an office space or office/industrial building. Most owners of a commercial real estate property will engage in a contract with a commercial real estate agent, much like a residential realtor. This engagement would be for the sale, lease or renting of the  property.  In this scenario the real estate agent is responsible to represent the building owner and the property during the sale or lease and responsible for marketing the availability of the space.

There are many segments in the Commercial Real Estate industry based on the types of property. Here are the 4 main categories you will find among commercial real estate agents.

  1. Retail
  2. Office
  3. Industrial
  4. Multi-family

2 Subcategories: Hospitality and Medical. Most represent the seller or landlord during the transaction.

If you are looking to buy or lease one of these spaces finding a Tenant Representative that specializes in your area of interest is strongly recommended to help guide you through the process and assist in setting expectations. To learn more about the Tenant Representations’ role in the transaction read more here or contact Peggy to represent you.

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Cycle Analysis by Chip Hughes

TriState Slide by Chip Hughes

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Mandatory Continuing Education for PA and NJ real estate license can be dull. But… Chip Hughes of A.R. Hughes & Co (www.arhughes.com) did an excellent job of holding and interesting class on Cycle Analysis for the continuing education class in November 2013.  I would like to share one of the significant points Chip made by tracking the prevailing thought, in other words the herd, and where they are placing their money.

One way to recognize the prevailing trend of thought was to compare the percentage recovery of the various commercial real estate product types in Value from the Peak to the Trough before the 2007 – 2008 financial crisis and through to today. The percentages were based on National statistics.  It was obvious that for the category “Apartment – Major” the loss in Value was about 23.1 % and the percentage gain from Trough through today is 100%. The Moody’s summary Chip had referenced 20 different sectors of property types. For example there were Apartment, Apartment (65% recovered), Non-Major (percentage recovered 53.5%). The prevailing trend still appears to be favoritism for Multi- family and “Central Business District Office – Major” (75.3%). The recovery for Suburban Office as a type has only been 19.2%. This product type could be an excellent place to invest dollars before the prevailing trends shifts in that property types favor. Of course when you drill down to specific Cities and specific Suburbs the local economies will have different world cycles.

 

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Montgomery County, PA

Montgomery County’s Office Market appears relatively stable based on a survey of 214 A class office buildings. In the September 2012 survey there was a vacancy of 14% and an average rental rate of $25.67 per SF per year. There has been some new construction. The first new Hospital to be built in the past ten years in S. E. PA opens this month in East Norriton, Montgomery County, PA. Einstein’s new Hospital is a 363,000 square foot LEED certified hospital building with 146 private beds and an adjacent medical office building, 100% leased on a 87 acre campus with about 30 acres dedicated to open green space. United Sates history is very visible in Montgomery County. PA Visitors’ Guide says: “Montgomery County was created on September 10, 1784 from part of Philadelphia County. Norristown, the county seat, was named for Isaac Norris, who owned land there. The vistas at Valley Forge Historical Park are especially breathtaking, both in fall foliage and later in the season as snow turns rolling hillsides into the perfect place to go sledding, or cross-country skiing. It was here that General Washington forged his Continental Army into a fighting force, during the difficult winter encampment of 1777-78. America’s past echoes through countless historic sites and homes in the Montgomery County area which trace the nation’s growth.”

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For 2013 Look Back at 2012 & 2011 Office Market

According to recent CoStar Group and PPR reports the Office Market in 2012 performed as expected… Office jobs increased 2.1%, the same as in 2011. Office sales were up 8% and the price of buying an office building increased 4.8%. Due to the correlation between job growth and demand for office space they compare the growth of employment in Total Non-Farm Employment to Office Using Employment, and the Office Use job growth was 1% more than the total non-farm job growth. Office Vacancy fell 50 basis points to 12.3%. Construction starts for Office are way down…Therefore the prediction is that 2013 will be similar to 2012 for the office market with some slow growth in demand and increases in rents. Of course these numbers are references to a National picture. Each region has different growth patterns depending on the local economy. The changes in rental rates year over year (2011/2012) provides an example of the differences. In San Francisco the year over year change in office rents was an increase of 14.6%; in the Philadelphia Region that change was 0.1%, and in Saint Louis a decrease of 1.6%. In most areas demand is increasing although slowly, construction is down, and rental rates are increasing.

For companies that use office space it is important to know you are striking the most reasonable and fair terms of a lease or lease renewal. As the office market cost increase in 2013, and beyond, good market intelligence, excellent insights into the local Office Market, and efficient design of the office are key to obtain the best possible terms of a lease.

PG Commercial Real Estate, Inc. | ITRA Global Philadelphia

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Lines Blur between Office and Retail Properties

Lines Blur between Office and Retail Properties

While there is very little new office building construction in the Philadelphia Region it sounds like there is new competition for Suburban Office Landlord’s coming from Retail Landlord’s. At a Philadelphia Retail Summit on February 16th representatives from Federal Realty Investment Trust, The Goldenberg Group, Wal-Mart Stores, Regency Centers, PREIT, Brixmor Property Group, RAS Brokerage, A & E Construction moderated by Jerald Goodman of Drinker Biddle & Reath. It was mentioned several times that the retail spaces were being redeveloped-reused for other purposes such as office space and medical office space. With this new competition there still were over 2.3 + million square feet of office space absorbed in the Philadelphia region in 2011. Will this new competitor reduce rental rates? Doubtful — because there is very little new construction of office buildings in the region. For example the vacancy rate for Office space in Montgomery County is approximately 12%. From a recent survey of Office Buildings in that county it appears that the trend for rental rates is that they are stable, not trending up yet. Using the Montgomery County office market as an example, even with this added competition from retail properties the office market in Montgomery County PA will most likely continue a stead slow improvement for 2012 following the employment picture.

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It’s A Tenant’s Market: Take Advantage!

Tens of thousands of businesses can significantly reduce their office rents right now. This is not a government program, so please don’t call them. To be eligible, you have to be:

1. A tenant in good standing

2. Creditworthy

3. Have a lease that terminates in the next two to three years

4.  Be willing to take advantage of a tenant’s market to trim overhead

Since landlords are under pressure to keep their buildings filled with quality tenants, it is possible to approach the landlord, and in exchange for extending your lease, you may be able to obtain lower rent, a rent concession, work space improvements, better lease clauses, a new tax base and more.

How? Convince the landlord you are serious about leaving.

Nothing says “I really can move to another building” more effectively than retaining a tenant representative who knows how to take advantage of current market conditions. A tenant rep will analyze your existing lease, while lining up competitive space offers in other buildings. This positions you and your tenant rep to approach your present landlord with negotiating leverage. When your landlord realizes you and your tenant rep have done your homework, and sees the competing offers, chances are, they’ll be quick to make you an offer you can’t refuse.

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