Downtown Business District
The revitalization of Downtown Harrisburg continues to have an impressive impact on economic development in the Downtown Region. 2007 was a mixed year for the Downtown Business District. Absorption totaled a negative 7,600 sq. ft. after two straight years of positive gains. Hampered by a weakened demand across the board, the Downtown Business District was unable to push figures into positive levels despite a respectable showing from the Class “B” properties in the Marketplace.

Total available inventory increased moderately in 2007 closing the year at 270,319 sq. ft. after occupancy rates soared to near record levels only one year ago. The market was poised for a pullback as a significant lack of supply continues to have an important impact on Downtown Tenant demand. This trend may be reversed in early 2008 as new availabilities come on line.

Class “A” occupancy rates closed the year at 98%. Absorption totaled negative 22,800 sq. ft. fueled by lackluster demand throughout the year and shortage of available first class product. Few opportunities remain for users who require premier properties and these figures may not be altered dramatically over the next several months. Market Square Plaza which was developed adjacent to the Harrisburg Hilton and Towers is now fully occupied and only a limited number of buildings will offer Class “A” suites in 2008.

Class “B+” occupancy rates remained unchanged closing the year at 94%. Absorption totaled negative 500 sq. ft. and available inventory remained under control. The outlook for 2008 should remain favorable as the few substantial vacancies which surfaced in 2007 receive attention, firming occupancy and rental over the next several Quarters.

Class “B” occupancy rates remained unchanged and closed the year at 91%. Absorption totaled 15,000 sq. ft. fueled by strong First and Second Quarters and the continued lack of office availabilities in the Downtown Business District. The redevelopment of this Downtown Business District has certainly been an important component in sustaining tenant interest and demand in Downtown Harrisburg. A number of highly publicized development projects are underway or being considered for this area which may impact the marketplace later in 2008 and well into 2009. These involve development projects outside the “core” Central Business District in economically challenged areas where economic incentives may be available.

East Shore Business District
2007 was an excellent year for the East Shore Business District. Absorption totaled over 169,774 sq. ft. marking its second straight year of impressive gains. Occupancy rates in all segments remain at favorable levels although there are several new projects planned over the next twenty-four months and totaling over 80,000 sq. ft. Location will be critical to the successful lease up of these new projects as secondary locations may significantly lag those with more attractive business addresses.

Class “A” occupancy rates rose slightly to 93%, their highest level since the Fourth Quarter of 2004. Absorption totaled an impressive 50,400 sq. ft. a result of a strong First Quarter. Demand increased sharply in 2007 and should continue as new projects are completed later in 2008. Rental rates remain stable and should also improve over the months ahead. Opportunities remain for first class users who desire a premier address in the mid-state. The addition of over 80,000 sq. ft. of new Class ”A” product should fuel demand later in 2009.

Occupancy in the Class “B+” segment rose three percentage points closing the year at 93%, its highest level since Second Quarter 2000. Absorption totaled positive 60,780 sq. ft. as tenants continued to expand from the Downtown Business District where few opportunities exist. Inventory levels are now at record lows as figures total only 128,210 sq. ft. New Class “A” construction over the past three years has been modest and has not negatively impacted the segment. Demand in recent months has improved, the outlook remains favorable as additional leasing opportunities within other segments may not come in line until early 2009.

Class “B” occupancy rates rose one percentage point and closed the year at 94%, its highest level since this Study’s inception in 1994. Absorption totaled an impressive 30,394 sq. ft., a result of a strong Fourth Quarter in 2007. Total available inventory remains at record levels approaching 97,500 sq. ft. Opportunities for larger users are not plentiful as only a few Class “B” buildings offer suites in excess of 6,000 sq. ft. Rental and occupancy rates should maintain their levels over the next year although some may face increased pressure from other segments in the marketplace.

lass “C” occupancy rates rose to near record levels closing the year at 88%. Absorption totaled 28,500 sq. ft. as a healthy Second Quarter helped push figures to positive levels. Total available inventory was reduced to 43,200 sq. ft. although further upside beyond this level appears extremely limited. Additional leasing opportunities in other segments may have an impact on the Class “C” segment throughout 2008 as there are several new projects planned over the next twenty-four months.

West Shore Business District
2007 was another strong year for the West Shore Business District. Absorption totaled over 52,200 sq. ft., its third consecutive year of impressive gains. This trend is a welcome sign after 2004 proved to be a dismal year for the West Shore Business District as absorption failed to reach positive levels. Occupancy rates remained unchanged in every segment of the West Shore Business District. Rental rates have stabilized and should increase in 2008. If early indications prove correct demand should continue throughout much of 2008 as new development appears limited and additional availabilities remain manageable.

For nearly ten years Class “A” occupancy rates have remained at or above the 95% level making it clearly the most consistent segment of the Greater Harrisburg Marketplace since the creation of this analysis over fourteen years ago. This year Class “A” occupancy rates managed to remain unchanged closing the year at 89%. Absorption totaled 24,900 sq. ft. Construction has commenced on two first class projects, 21,000 sq. ft. and 25,000 sq. ft. respectively. This influx of new upscale supply should not have an impact on demand over the course of the year as opportunities for large premier users remain reasonable. Rental rates should continue to firm if demand continues at its current pace.

Occupancy rates in the Class “B+” segment remained at their highest level since 1994 and closed the year unchanged at 94%. Absorption totaled 7,950 sq. ft. and available inventory remains near record lows. Few large opportunities exist at these office properties and the outlook for this year remains favorable should demand levels continue to maintain their strength throughout 2008.

Class “B” occupancy rates rose slightly closing the year at 94%. Absorption totaled 23,650 sq. ft. This segment has continued to improve since the Third Quarter of 2001 when occupancy rates slipped to 84%. The lack of substantial new construction helped to stabilize the Class “B” segment in recent years and rental and occupancy rates should continue to firm in 2008 as few large availabilities remain in more premier office properties. The market has remained incredibly resilient over the past several Quarters stabilizing dramatically since 2001 and reaching 94% for the first time since the studies inception in 1994.

he Class “C” segment remained unchanged once again and closed the year at 91%. Absorption totaled 3,400 sq. ft. Rental rates continue to remain stable and available inventory has been reduced to 42,700 sq. ft. Occupancy and rental rates should experience increased stability throughout 2008 as the demand for office space in the mid-state continues to firm.

Thomas T. Posavec, SIOR, VP, Office
Senior Partner of the Office Service Group
www.HarrisburgOffice.com