Greater Reading Office Market Overview 2nd Quarter 2013 Report By Bryan Cole

Suburban Office Market Overview

The Greater Reading Suburban Office Market ended the second quarter 2013 with a vacancy rate for Class A Office buildings at 15.60%. This is a decrease in vacancy rates from 1st quarter 2013 and an increase in vacancy from same period 2012. The average rental rates increased to $16.50 - $21.50 per square foot Modified Gross which is an increase in the rates from the same period 2012. Deals of primary focus within Class A building sector were the 6,863 sf. lease at 1220 Broadcasting Road, which was a relocation and expansion for the already Wyomissing based organization, and the new Amity Professional Center which Amity Dentistry leased space in the new building located at 957 Ben Franklin Highway, these leases along with a few other assisted in reducing vacancy rates and increasing overall absorption. The Class B Suburban office market ended the second quarter of 2013 with a vacancy rate of 19.46%. This is a slight increase in vacancy from first quarter 2013 by less than one percent, and it is a slight decrease from the same period 2012. The average rental rates had an increase from 1st quarter 2013 to 2nd quarter 2013 at $12.50 - $17.50 per square foot modified gross opposed to that of rates from the same period 2012 which was $11.00 - $17.50 per square foot. Deals of primary focus within the Class B building sector were the new leases at 965 Berkshire Blvd. of 11,014 sf, and 2001 State Hill Road of 3,500 sf. The activity level for second generation Class B space has slowed into the second quarter, however this is typical towards the summer months. We expect an increase within the 3rd quarter 2013. And the Class C Suburban office market sector ended the 2nd quarter of 2013 with a vacancy rate of 13.0% which was an increase from the 1st quarter 2013. Our outlook for the office market going into 3rd quarter 2013 is continued optimism as activity levels continue to remain strong. There are over 200,000 sf. of new lease deals within the Berks County market.

Downtown Reading Office Market Overview The Greater Reading Downtown Office Market ended the 2nd quarter with a vacancy rate for Class A Office buildings at 21.47%. This was welcomed news as it was a positive change in vacancy rates from 1st quarter 2013; and it was also a decrease from the same period 2012. The average rental rates remained steady from 1st to 2nd quarter 2013 at $11.00 per square foot Modified Gross to $15.00 per square foot Modified Gross. The largest contiguous blocks of vacancies in Class A facilities were at 401 Penn Street and 201 Penn Street, which caused Class A vacancy rates to sky rocket from 2011 into 2012. Due to the current economic climate and overall interest in the City, these buildings remain vacant and are still taking a toll on the overall vacancy rate within Downtown. However 400 Washington Street added new tenancies which helped the overall vacancy rates. The Class B Downtown office market ended the 1st quarter with a vacancy rate of 21.86%. This was a slight decrease in vacancy rates from 1st quarter 2013, and it was a slight decrease from the same period 2012. The average rental rates remained unchanged at $7.00 per square foot Modified Gross in the 1st quarter 2013 to $11.00 per square foot Modified Gross, this is however a decrease to the rates from the same period 2012.

Overall Vacancy Rates for Class C buildings jumped from 1st quarter to over 23.21%, this was due to Class C tenants moving to higher tier properties and various buildings previously tracked as Class B buildings were changed to Class C buildings, due to re-evaluating the assets and conditions.

Tenant perspective: (As a Tenant Representative) The Greater Reading market has experienced a high level of interest within the 2nd quarter 2013, although activity is high and deals are steadily coming forward; the A and B product is still offering incentives/concessions which have allowed Tenants to continue to capitalize on past market conditions. However, as expected and outlined in the 1st quarter report; concessions are beginning to limit themselves and rates are beginning to increase. Tenants should begin to negotiate any leases that are within 18 months of expiration. This allows for enough room to negotiate and capitalize on the current conditions. Although the markets are improving and landlords will begin to lock in better terms, we feel the market will continue to be a Tenants Market into the late stages of 2013 based on current vacancies and leasing activity.

Landlord perspective: (As a Landlord Representative) Greater Readings recent activity will sway some landlords to think the market has completely turned around. Be cautious as we feel well into 2013 the market will maintain its Tenant Market status. Interest Rates have been low over the past few years and although they are beginning to rise, Landlords should continue to take advantage of these rates for Improvements or refinancing. By offering free rent on the front end and maintaining higher base rates, Landlords will not only provide tenants the ability to get into the space on a lower initial cost for year 1, it will allow landlords to maintain higher valuations on their assets since most Free Rent is outside the term. This allows landlords to still get effective 3, 5, or 7 year terms while limiting their exposure long-term.

By Bryan Cole, NAI Keystone Commercial & Industrial, LLC Office & Medical Real Estate Specialist www.Bryan-Cole.com or www.WyomissingOfficeSpace.com