6C — June 8 - 21, 2012 — Pennsylvania — Mid Atlantic Real Estate Journal



By John O. Birkeland, ROCK Commercial Real Estate The secret of successful class “A” office buildings


romourmarket research, ROCK has discovered that class “A” office prop-

kneejerk answer is there is a lesser supply of class “A” office properties than “B” or “C” in the market, so absorption is more rapid, combined with neg- ligible new class “A” product coming to the market or in the pipeline. However, with a little research, we discover according to our resources that in the City of York there is 1,168,006 s/f of class “A” office with a 5.54% vacancy rate, 1,413,674 s/f of class “B” with a 17.09% vacancy rate, and 625,649 s/f for class “C” with a 19.74% va- cancy rate. Countywide there is more class “A” square footage overall, 4,602,445 gross s/f com-

pared to 4,283,944 Gross s/f of class “B” and 2,504,331 Gross s/f of class “C”. class “A” occu- pancies also are the highest in the county. Further, there is no significant additional supply of office space coming onto the market in any class that we are aware of. According to Divi- dend Capital’s market cycle report, this is currently the case nationwide, as the vast majority of office markets are still in the recovery phase and average rents and occupancies are not justifying any new of- fice construction. Looking from an office mar- ket demand perspective, a first

thought is, “office tenants are scaling back and the pool is shrinking.” I listen to talk radio and read the paper. Things are tough in “This Economy”. My impressions are office tenants are spartan and purging jobs. When I do my homework, I re- alize that both assumptions are not accurate. First, companies did get lean and mean during the Great Recession, and gen- erally became more efficient. According to FRED (Federal Reserve Economic Data), to- day corporate profits are at the highest levels since FRED started tracking the informa- tion in 1947. More efficient

indeed. To verify local profes- sional and business service employment trends, I consult the Bureau of Labor Statistics website. Lo and behold, from January 2010 to March 2012 the number of professional and business employees in the area has grown from approximately 15,400 to over 19,000. That is 23.4% growth in just over two years. The final piece to the puzzle is pricing. If supply is low and demand is growing, and the tenants have the money to spend, then it follows that we should see increasing rents in class “A” properties. Upon con- sulting our company records to compare current office lease rates with historic rates, we show class “A” space leased at an average of $13.55/ s/f in 2009, and $14.18 per s/f in 2012. LoopNet’s market trend graphs verify area office lease rates have remained basically flat since 2006. In a nutshell, we have limited supply, in- creased demand, and the pric- ing has not adjusted yet. class “A” office space will continue to lease well until rates adjust to the market. At this point, next time a class “A” building owner is dis- cussing his/her building with me, or I am chatting business at a networking event (or on the golf course), I can intel- ligently answer this question. I have solid information and can demonstrate expert market knowledge. Conclusion – know the factors that affect your market. Know where to find the information you need and then take the time to analyze it. Assumption shortcuts, even by seasoned professionals, can lead you down the wrong path. If you do not have the time or access to the resources, find and partner with someone that does. Faber College was the mythical setting of the movie Animal House, and the motto of Faber College has always amusingly rung true, “Knowl- edge is Good.” John O. Birkeland is a brokerage advisor for ROCK Commercial Real Estate. John specializes in retail leasing and sales, invest- ment properties, and cor- porate services. He has a strong background in hotel and restaurant properties, and earned a masters de- gree in Management from the Cornell University Ho- tel School. ■

erty occupan- cies in the area are out- performing the class “B” and “C” coun- t e r p a r t s . This led to the obvious question of, “Why?”

John O. Birkeland

It really comes down to un- derstanding supply and de- mand trends in the markets, from global to local. From a supply point of view, the


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ROCK Commercial Real Estate, LLC, Susquehanna Commerce Center West 221 West Philadelphia St. Suite 19, York, PA 17401-2992 717-854-5357 Fax: 717-854-5367 www.rockrealestate.net

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