lehigh valley commercial real estate report office & … · 2017. 11. 2. · commercial real...

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Q3 2017

LEHIGH VALLEY COMMERCIAL REAL ESTATE REPORT

ISSUE # 011

OFFICE & INDUSTRIAL MARKETS

2 COMMERCIAL REAL ESTATE REPORT • Q3 2017

CURRENT CONDITIONS

The Lehigh Valley economy has once again grown to record-high levels.

One of the core principles of the Lehigh Valley Economic Development Corporation (LVEDC) is to serve as the leading source of economic data and market intelligence on the Lehigh Valley’s economic assets and resources to serve our economic strategies, marketing efforts, and the needs of our stakeholders. To that end, LVEDC prepares a series of quarterly reports about the real estate climate in the Lehigh Valley. This report focuses on the region’s office, industrial, and flex markets.

BROKER PERSPECTIVE

“Demand for new Class A industrial product in the Lehigh Valley market is very strong and we have noticed users are looking for immediate turnkey delivery of flexible industrial properties. To keep up with the demand, our firm currently has over 500,000 square feet of speculative buildings that will be delivered to the market in 2017. As the manufacturing, distribution and e-commerce industries continue to evolve, we believe our flexible speculative designs will translate into efficient and timely delivery of user fit-out requirements, which will support their efforts to accelerate growth opportunities in the Lehigh Valley and surrounding metropolitan markets.”- Joe Correia, Executive Vice President, J.G. Petrucci Co., Inc.

The regional gross domestic product (GDP) has reached an all-time high of $39.1 billion for 2016, a more than 4 percent increase over the previous year. The Lehigh Valley saw year-over-year growth in each individual subsector, reflecting the remarkable balance of the Lehigh Valley economy.

Finance, insurance, and real estate is once again the region’s largest sector in terms of GDP, having reached $8 billion, or roughly 20 percent of the total economy. Manufacturing saw significant growth as well, reaching $6.9 billion, while transportation and warehousing is the fastest-growing economic sector, reaching $1.9 billion, a 9.5 percent year-over-year increase.

The Lehigh Valley economy is now larger than that of Wyoming ($38.5 billion) and Vermont ($31.5 billion), as well as 108 other countries in the world. If the Lehigh Valley were a country, it would be the 87th largest in the world in terms of economic output.

The region continues to experience a shortage of smaller-footprint industrial manufacturing and flex space. The total available space for

buildings in the between 40,000 and 80,000 square feet has changed little in the last five years. Only one building within that size range was completed in 2017, and none are currently under construction.

The Lehigh Valley’s industrial market has risen to 115.8 million square-feet, with 6 million square-feet currently under construction. The region’s industrial vacancy rate is currently 4.9 percent. CBRE recently reported that the Lehigh Valley market ranks second globally in rent growth for industrial properties (10.1 percent), behind only the Seattle area (16.9 percent).

The regional office market has also experienced growth, reaching a total inventory of 26 million square-feet, with 269,263 square-feet currently under construction, and 105,840 square-feet of year-to-date deliveries as of the third quarter of 2017. The Lehigh Valley’s unemployment rate has remained steady at 5.2 percent as of August 2017, a rate that has remained virtually unchanged since the previous quarter. - Jarrett Witt, LVEDC Director of Business Development

3COMMERCIAL REAL ESTATE REPORT • Q3 2017

Lehigh Valley

SNAPSHOT: INDUSTRIAL MARKET

115.8 MillionTotal Inventory (SF)

561K Net Absorption (SF)

$5.54Average Asking Rent (NNN)

6 MillionTotal Under Construction (SF)

4.9%Total Vacancy

2.3 Million2017 Net Absorption (SF)

10.0%YOY Rent Growth

2.2 MillionYTD Deliveries (SF)

Includes Flex. Source: CoStar 9-30-17 data set, LVEDC Research

MARKET SUMMARYOf the 5.7 million square feet under construction, none is for small-footprint manufacturing space.

SMALL-FOOTPRINT INDUSTRIAL BUILDINGS (40,000-80,000 SF)

ASKING RATE (PER SF)

Total Available Space:1.1 MILLION SF

16 BUILDINGS6.4% of the Total Inventory67.4% of Available Space

AverageAge:64 YEARS

Total Square Feet

Q3 2017Q3 2016Q3 2015Q3 2014Q3 2013Q3 2012

13.2M 13.2M 13.2M 13.2M 13.2M

13.4M

Q2 2017Q1 2017Q4 2016Q3 2016 Q3 2017

Combined Industrial Space

$4.99

$5.35

$5.46$5.54

$5.03

Asking rate reflects growing demand for industrial properties.

$DeliveriesSQUARE FEET Absorption

Q3 2017Q2 2017Q1 2017Q4 2016Q3 2016

1,686K

5,262K

3,962K

1,491K

250K561K

320K846K

1,045K

SUPPLY & DEMAND (SF)

Three buildings were delivered in Q3, only one smaller than 80,000 SF

Vacancy

COMPLETED SINCE MARCH 20171 (79,160 SF)

UNDERCONSTRUCTION

0

Total available space has changed very little in 5 years

OldestBuilding:

117 YEARSAVAILABLE

SPACE


Lehigh Valley

SNAPSHOT: OFFICE MARKET

26 MillionTotal Inventory (SF)

371K Net Absorption (SF)

$15.33 Average Asking Rent (NNN)

269.3KTotal Under Construction (SF)

6.7%Total Vacancy

731.6K2017 Net Absorption (SF)

1.9%YOY Rent Growth

105.8KYTD Deliveries (SF)

Sources: Amazon, CoStar (9-30-17 data set), Colliers International Q2 2017 Office Market Outlook, Lehigh Valley Planning Commission 2017 Build LV Report, LVEDC Research. *The only overlap in projects under construction and projects approved for development is City Center Allentown’s Tower 6 (135,945 SF).

MARKET SUMMARYThe office vacancy rate fell from 7.7 percent in Q2 to 6.7 percent in Q3.

DeliveriesSQUARE FEET Absorption

Q3 2017Q2 2017Q1 2017Q4 2016Q3 2016

44.5K0

66K

47.3K

8.3K

84.9K57.6K

275.8K

40K

371K

SUPPLY & DEMAND (SF)

Absorption has outpaced deliveries in each quarter of 2017.

ASKING RENT RATE

Q2 2017Q1 2017Q4 2016Q3 2016 Q3 2017

CLASS A COMBINEDREAL ESTATE

$15.04

$18.30 $18.17

$18.28 $18.36 $18.12

$14.90$15.64 $15.29 $15.33

Class A asking rent decreased, while overall office rent increased$

AMAZON HQ2

Office space delivered

in the Lehigh Valley

market in the past

12 months: 172K SF

Office space requirementin Phase 1 (2019) of

Amazon’s HQ2 project:500K SF

8.1M SF6.5M SF

CurrentOffice Spaceoccupied byAmazonin Seattle

CurrentOffice Spaceoccupied byAmazonin Seattle

TotalClass A

Office Spacein the

Lehigh Valley

Asking Rates for Class A Office Space

($/SF)

Manhattan $78.69

Washington, DC $59.69

Boston $59.05

Long Island $30.65

Northern NJ $30.38

Central NJ $27.76

Lehigh Valley $18.12

Approved for development: 840K SF*

Class A

office space

currently vacant in

the Lehigh Valley:

690K SF

Currently under construction: 269K SF


BROKER PERSPECTIVE “The Lehigh Valley has seen a steady and sometimes significant economic growth pattern over the last seven years. While the e-commerce and distribution markets have received the lion’s share of publicity and job creation, the office market has likewise seen a steady, albeit slower, upward trend. The downtown Allentown office component has led the way in new product and provided significant activity while the suburban and surrounding office product works to fill up its vacancies left by the burgeoning city market. This reverses the trend in the Valley seen over the prior 40 years of office location by major employers and we expect the users to steadily backfill the surrounding regional space.”

- Del Markward President & CEO, Markward Group


Source: Lehigh and Northampton County Real Estate Tax Records, LVEDC Research, CoStar

Q2 2017 COMMERCIAL REAL ESTATE TRANSACTIONS

PROPERTY SFLANDLORD

REPRESENTATIVE TENANT MUNICIPALITY CLASS

1611 Van Buren Road 629,800 CBRE XPO Logistics Palmer Twp. Industrial

30 N. 4th St. . 65,340 ALT Realty Easton Arts Academy Elementary Charter School Easton Office

1139 Lehigh Ave. 40,844 NAI Summit P&B Partitions Whitehall Industrial

268 Brodhead Road 33,722 Paranee Property Management

Hanover Twp. (Northampton) Flex

600 Hamilton St. 11,839 City Center Talen Energy Allentown Office

2451 Baglyos Circle 9,000 NAI Summit Bethlehem Twp. Flex

NOTABLE LEASES

PROPERTY BUYER SELLERSALEPRICE MUNICIPALITY CLASS

555 Union Boulevard Executive Education Academy Charter School Samuel Brill $32,500,000 Allentown Office

30 N. 4th St. City of Easton 30 North Fourth LP $7,728,105 Easton Office

7350 William Ave. Cabot Properties High Street Realty Co., LLC $7,600,000 Upper Macungie Twp. Industrial

3900 Burgess Place J.G. Petrucci Co. Guardian Life Insurance $6,750,000 Hanover Twp.(Northampton) Office

1530 8th Ave. A.L. Bazzini Co. Eighth Avenue Professional Associates $6,250,000 Bethlehem Office

272 Brodhead Rd. Centurion Eagle LLC Michael M. Dunn $4,400,600 Hanover Twp. (Northampton) Industrial

7230 Beth Bath Pike L&M Fabrication and Machine MC Ironworks $4,125,000 East Allen Twp. Industrial

966 Postal Road Cabot Properties High Street Realty Co., LLC $3,675,000 Hanover Twp. (Lehigh) Industrial


7331 William Ave. Cabot Properties High Street Realty Co., LLC $3,600,000 Upper Macungie Twp. Industrial


101 S. 7th St. IBEW Local 375 S&S Singh Partners $2,150,000 Allentown Office

316 Broadway Blue Ridge Business Center Stephen E. and Patricia L. Howanitz $1,399,000 Wind Gap Industrial

2020 Downyflake Lane Affordable Dental Realty LLC David and Lisa Capece $1,350,000 Allentown Office

NOTABLE SALES


Lehigh Valley Pennsylvania United States

Aug-12 Aug-13 Aug-14 Aug-15 Aug-16 Aug-174.0%

5.0%

6.0%

7.0%

8.0%

9.0%

5.2%

4.5%5.1%

Total nonfarm, Seasonally-adjusted figures. Sources: Bureau of Economic Analysis, JobsEQ®. Data as of August 2017.

“With a GDP of $39.1 billion, the Lehigh Valley is now the 65th largest economy in the United States, which is a jump of eight places from 73rd last year. Our region has more annual economic output than the states of Vermont and Wyoming, as well as 108 other countries in the world. In fact, if the Lehigh Valley were a country itself, it would have the 87th largest economy in the world.”- Don Cunningham, President & CEO, Lehigh Valley Economic Development Corporation

UNEMPLOYMENT RATE

Lehigh Valley

ECONOMIC CONDITIONS

Lehigh Valley ranked 65th in the country among metropolitan areas for GDP in 2016.

We are up 8 spots in the ranking from 2015.

THE LEHIGH VALLEY HAS GREATER GDP THAN THE STATES OF Vermont & Wyoming

& THE FOLLOWING CITIES

LEHIGH VALLEY GDPBY INDUSTRY SECTOR

Arts, Entertainment, Recreation,Accommodation, & Food Services

Transportation & Warehousing

Information

Retail Trade

Professional & Business Services

Education, Health Care, & Social Assistance

Manufacturing

Finance, Insurance & Real Estate

$0 $2 $4 $6 $8

2015 2016

$1.57$1.49

$ in Billions

$1.87

$1.71

$1.90

$1.87

$2.30

$2.22

$5.30

$5.08

$5.33

$5.09

$6.89

$6.72

$7.98

$7.54

Worcester, MA Dayton, OH Fresno, CA Greensboro, NC Knoxville, TN

2158 Avenue C, Suite 200 Bethlehem, PA 18017Phone: 610-266-6775 • Fax: 610-266-7623

www.lehighvalley.org

Our MissionThe mission of the Lehigh Valley Economic Development Corporation is to market the economic assets of the Lehigh Valley and to serve as a regional shared services and resource center to help businesses to come, start, and grow here.

Our VisionOur vision is of a Lehigh Valley with a diverse economic base in our cities and counties that enable businesses to come here, start here and flourish here in order to create jobs and opportunities for all of our residents.

Our Priorities• Marketing Economic Assets• Coordinating a Prepared Workforce• Focusing on City and Urban Development• Serving as a Shared Services Center• Providing Access to Capital• Building our Resources and Engaging

Stakeholders

Lehigh ValleyCome here. Start here. Grow here.

©2017 Lehigh Valley Econom

ic Developm

ent Corporation. All R

ights Reserved. 10.17

LVEDC

Com

mercial R

eal Estate Report designed by M

ichelle Chrin.

lehigh valley commercial real estate report office & … · 2017. 11. 2. · commercial real...

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