www.lehighvalley.org

Q3 2018

LEHIGH VALLEY COMMERCIAL REAL ESTATE REPORT

ISSUE #015

OFFICE & INDUSTRIAL MARKETS

2 COMMERCIAL REAL ESTATE REPORT • Q3 2018

CURRENT CONDITIONS

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 “As we closed the third quarter, the Lehigh Valley continued to present a healthy industrial real estate sector. The new inventory of industrial space under construction should place the broader Lehigh Valley in a great position to continue its ability to support the corporate demand, which views this area as a viable operational point to service their clients and support growing operations.” Brian Knowles, CCIM, SIOR Principal, Lee & Associates of Eastern Pennsylvania

The urban centers of the Lehigh Valley are continuing to drive office space construction in the region.

The Lehigh Valley has seen 26,000 square meters of deliveries to the office market so far in 2018, and 25,000 square meters of that amount is Class A office space that has been built in urban cores of the region. That comes largely from the construction of Tower 6 in Allentown and the Gateway Building on Greenway Park in Bethlehem.

There is just over 28,000 square meters of office space currently under construction in the Lehigh Valley. The regional office market has a total inventory of 2.5 million square meters, of which 641,000 square meters (or roughly 25 percent) is Class A office space.

The Lehigh Valley’s office market has a vacancy rate of 7.7 percent, and overall asking rent rates currently stand at $160.17 per square meter, with Class A asking rent rates coming in at $201.29 per square meter.

The region’s industrial market continues to grow, reaching 11.3 million square meters as of the third quarter of 2018. There have been about 250,000 square meters in deliveries this year so far, and another 458,000 square meters are currently under construction.

Out of 12 industrial buildings currently under construction, only five will be greater than 27,500 square meters in size. Another six will be between 9,000 square meters and 27,500 square meters, and one will be smaller than 9,000 square meters.

Of the industrial buildings greater than 27,500 square meters in the Lehigh Valley, 62 percent are being used for distribution or fulfillment, supporting the rapid movement of goods within business supply networks or directly to consumers who purchase items online. Another 26 percent are used for manufacturing. Only 12 percent are used for traditional warehousing.

The Lehigh Valley’s unemployment rate as of August 2018 has dropped to 4.2 percent, compared to 5.0 percent a year earlier. That is roughly consistent with the national unemployment rate of 3.9 percent, and the Pennsylvania rate of 4.1 percent. The Lehigh Valley has a significantly lower cost of living than other major metropolitan areas, such as Philadelphia (with a 6 percent higher overall cost), central New Jersey (10 percent), northern New Jersey (17 percent), Boston (42 percent) and Manhattan (127 percent). Jarrett Witt LVEDC Director of Business Development

3COMMERCIAL REAL ESTATE REPORT • Q3 2018

Lehigh Valley

SNAPSHOT: INDUSTRIAL MARKET

11.3 MillionTotal Inventory (SM)

187.5K Net Absorption (SM)

$67.17Average Asking Rent (NNN)

457.9KTotal Under Construction (SM)

4.8%Total Vacancy

257.1K2018 Net Absorption (SM)

14.1%YOY Rent Growth

248.9K YTD Deliveries (SM)

Sources: CoStar, LVEDC Research

MARKET SUMMARYThe Lehigh Valley has 458,000 square meters of industrial space under construction.

INDUSTRIAL BUILDINGS (OVER 27,500 SM)

ASKING RATE (PER SM)

Q3 2017 Q4 2017 Q1 2018 Q3 2018Q2 2018

Combined Industrial Space

$60.60

$62.22

$62.00

$58.88

$67.17

Industrial property rents have increased by 14.1 percent in the past year.

$DeliveriesSQUARE METERS Absorption

Q3 2018Q2 2018Q1 2018Q4 2017Q3 2017

26.8K

119.5K 126.7K

36.9K

189K

22.9K 33.9K

-25.8K

95.4K

187.5K

SUPPLY & DEMAND (SM)

Distribution 53%Manufacturing 26%Warehousing 12%

Fulfillment 9%

USAGEOF BUILDINGS

> 27,500 SM = 59,000 to 27,500 SM = 6

< 9,000 SM = 1

BUILDINGSUNDERCONSTRUCTION

Q3 2017 Q4 2017 Q1 2018 Q3 2018Q2 2018

Buidings > 27,500 SM

4.0%

5.8%

6.5%

8.1%

5.5%

VACANCY RATE

4 COMMERCIAL REAL ESTATE REPORT • Q3 2018

Lehigh Valley

SNAPSHOT: OFFICE MARKET

2.5 MillionTotal Inventory (SM)

10.3K Net Absorption (SM)

$160.17 Average Asking Rent (NNN)

28.2KTotal Under Construction (SM)

7.7%Total Vacancy

25.4K2017 Net Absorption (SM)

-3.2%YOY Rent Growth

26.1KYTD Deliveries (SM)

Sources: CoStar, LVEDC Research

MARKET SUMMARYThe Lehigh Valley has added 130,000 square meters of office space in the last five years.

DeliveriesSQUARE FEET Absorption

337K

Q3 2018Q2 2018Q4 2017 Q1 2018Q3 2017

31.3K

0 01.1K

25.1K

10.7K

15.6K

10.3K

-499

-11.4K

SUPPLY & DEMAND (SM) ASKING RENT RATE

Q3 2017 Q3 2018Q2 2018Q1 2018Q4 2017

CLASS A COMBINEDREAL ESTATE

$165.44

$195.04

$170.07

$154.03 $157.15 $160.17

$200.21

$188.80$195.15

$201.29

Office rent rebounded inQ3 but overall rent rates remain lower year-over-year.$

CLASS A OFFICE SPACE

http://ywcabethlehem.org/wp-admin/themes.php

ProjectsTotal SM

Urban Core SM

In pipeline 1 27,400 27,400

2018 2 25,000 25,000

2017 1 7,000 0

2016 2 33,000 6,100

2015 1 19,500 19,500

2014 1 27,500 27,500

OFFICE SPACE ADDITIONS

Sources: CoStar

OTHER MARKETS

RETAIL, MEDICAL &MULTI-FAMILY PROJECTS

Q3 Deliveries

Under Construction

Retail 930 SM 6,800 SM

Medical 0 SM 16,700 SM

Multi- Family 140 units 590 units

5COMMERCIAL REAL ESTATE REPORT • Q3 2018

BROKER PERSPECTIVE “The Lehigh Valley office market continues to be very strong, especially in the urban areas of Allentown with the NIZ and Bethlehem with the CRIZ. New urban buildings are leasing at a rapid rate as businesses are looking for incentives and unique designs. Interest in the new federal Qualified Opportunity Zones is bringing additional attention to the Lehigh Valley with developers and investors expressing interest in available properties. 2019 should prove to be an interesting year for redevelopment projects in the locations designated as Qualified Opportunity Zones.”Cindy McDonnell Feinberg, CCIM Feinberg Real Estate Advisors

http://ywcabethlehem.org/wp-admin/themes.php

OTHER MARKETS

6 COMMERCIAL REAL ESTATE REPORT • Q3 2018

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

Q3 2018 COMMERCIAL REAL ESTATE TRANSACTIONS

PROPERTY SMLANDLORD

REPRESENTATIVE TENANT MUNICIPALITY CLASS

1620 Van Buren Rd. 94,362 CBRE UPS Palmer Twp. Industrial

7570 Industrial Park Way 14,632 Colliers Kane Warehousing Lower

Macungie Twp. Industrial

6461 Snowdrift Rd. 9,410 Colliers Upper Macungie Twp. Industrial

7663 Industrial Blvd. 6,039 CBRE Blue Ridge Home Fashions

Upper Macungie Twp. Industrial

4779 Hanoverville Rd. 3,159 NAI Summit Innovative Office

ProductsLower

Nazareth Twp. Industrial

1110 American Parkway NE 2323 CBRE St. Luke’s University

Health NetworkHanover Twp.

(Lehigh) Office

969 Postal Rd. 1,598 CBRE Shift4 Hanover Twp. (Lehigh) Industrial

7584 Morris Ct. 1,424 CBRE BioMedical Upper Macungie Twp. Industrial

PROPERTY BUYER SELLERSALEPRICE MUNICIPALITY CLASS

1100 Mill Rd. TA Realty LLC IPT Iron Run DC LLC $21,000,000 Upper Macungie Twp. Industrial

2007 Industrial Drive Western Express Inc. TWI LLC $8,868,300 Bethlehem Industrial

600 Brighton St. Brighton Industrial LLC Ruhle & Kerr Associates $8,373,500 Fountain Hill Industrial

681 Grange Rd. Grange Mill LLC Jeffrey A. Faust Trust $4,000,000 Upper Macungie Twp. Industrial

111 Lehigh St. Luicanas LLC Narsu and Ramani Tatikola $1,800,000 Macungie Industrial

1624 Hausman Rd.

Kyle David Capital Partners LP

Keystone Real Estate Partners $1,500,000 South

Whitehall Twp. Office

41 Community Drive Barrow Street LLC OMDM Family LP $1,400,000 Palmer Twp. Office

NOTABLE SALES

NOTABLE LEASES

7COMMERCIAL REAL ESTATE REPORT • Q3 2018

Lehigh Valley Pennsylvania United States

Sept-13 Sept-14 Sept-15 Sept-16 Sept-17 Sept-18

4.2%

3.9%4.1%

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

Total nonfarm, Seasonally-adjusted figures. Source: PA Dept of Labor and Industry

“The Lehigh Valley’s gross domestic product reached a record-high $40.1 billion for 2017, and growth in manufacturing was responsible for about 36 percent of that year-over-year GDP increase. The Lehigh Valley is unique among major metropolitan areas in the United States in that manufacturing is driving such a large percentage of its growth. Manufacturing is clearly alive and well in the Lehigh Valley, and our regional GDP is the largest it’s ever been, far surpassing even the days of Bethlehem Steel.”

Don CunninghamLVEDC President & CEO

UNEMPLOYMENT RATE

Lehigh Valley

ECONOMIC CONDITIONS

HOME OWNERSHIP

COST OF LIVING

Source: Census Bureau, American Community Survey

Source: Council for Community & Economic Research

APARTMENT RENT

Renter-occupied Owner-occupied

68.2%

31.8%

HOUSEHOLDSQ4

2015Q1

2016Q2

2016Q3

2016Q4

2016Q1

2017Q2

2017Q3

2017Q4

2017Q1

2018Q2

2018Q3

2018

$1,232

$1,140

Rent per monthfor 3- to 5-Star2-Bedroom Apartment

Source: CoStar

Overall Cost

Housing Cost

Philadelphia 6% 2%Central NJ 10% 16%Northern NJ 17% 36%Boston 42% 82%Washington, D.C. 52% 123%Brooklyn 68% 167%Manhattan 127% 333%

How much more does it cost to live in the following areas versus the Lehigh Valley?

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 create partnerships to lead the recruitment, growth, and retention of employers.

Our VisionOur vision is of a diverse Lehigh Valley economy that provides economic growth and opportunity for people of all skills and education and strengthens all our cities, boroughs, and townships.

Our Priorities• Market the economic assets of the

Lehigh Valley• Recruit companies in targeted

economic sectors• Support the growth and retention

of new and existing employers• Promote and coordinate a skilled and

prepared workforce• Provide intelligence and data on

the Lehigh Valley economy• Expand public and private LVEDC

investment and build partnerships for economic growth

Lehigh ValleyCome here. Start here. Grow here.

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