Wednesday, July 15, 2020

Harrisburg Multifamily Holds Strong Through Second Quarter

Harrisburg  multifamily held up well through the most tumultuous quarter in commercial real estate history.

By the end of June, vacancies remained near their pre-pandemic record lows. This is, thanks in large part, to minimal construction.

Fewer than 200 units were underway at the time of the shutdown, and most of those were in a single expansion to the Oakwood Mills in Mechanicsburg. The three-star project is adding close to 180 units, which are expected to deliver in late 2020.

Such minimal expansion makes sense in a slow-growth market like Harrisburg, and with few other projects underway, it seems unlikely that a significant softening will show up through the third quarter.

But there are some clouds on the horizon. Harrisburg contains plenty of workforce housing, and blue-collar workers. These projects could be in trouble as the retail industry is already being transformed by the virus, particularly if manufacturing takes a sustained hit.

The market also has an abnormally high percentage of industrial tenants exposed to risk. While both local and regional players remain confident that Harrisburg logistics will quickly recover, nearly 2.5% of its industrial space is occupied by at-risk tenants, who were struggling financially before the coronavirus hit.

Being the state’s capital typically provides the market with a base-level of insulation from economic disruption, however, Pennsylvania’s looming budget crises is already causing heavy cuts to state employment. Close to 2,000 employees have been laid off, and an additional 14,000 remain furloughed.

Additionally, the boosted unemployment benefits are set to be reduced at the end of July. The extra $600 a month from the feds could be offsetting the financial pinch many blue-collar workers are experiencing, which could drag down the market’s otherwise impressive levels of rent growth.

Local voices in the apartment industry seem confident, however. They cite the deep shipping market and high levels of state employment, as well as the ongoing population growth in Cumberland County. This could limit the fallout, though sales will likely be limited for some time.

Investment was nearly non-existent through the second quarter, with only a handful of small projects trading between private buyers. This could change if occupancies remain strong, however; and regional investors believe that the workforce housing market-which Harrisburg has a deep pool of- remain a solid buy.

“We don’t believe the coronavirus will have a long-term impact on multifamily demand” said Jerome Meyers, head of the Meyers Group. His boutique firm invests in workforce housing investment and development, and says markets like Harrisburg, with a deep concentration of blue-collar workers should remain a strong market.

“These are projects for cops, firefighters and warehouse workers,” he said. “The people who make the world go around. They aren’t going anywhere and will still need a place to live.”

No comments:

Post a Comment