Q OFFICE, INDUSTRIAL & FLEX MARKETS ISSUE # 003 LEHIGH VALLEY COMMERCIAL REAL ESTATE REPORT IN THIS ISSUE

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1 ISSUE # 003 LEHIGH VALLEY COMMERCIAL REAL ESTATE REPORT OFFICE, INDUSTRIAL & FLEX MARKETS 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 is preparing a series of quarterly reports about the real estate climate in the Lehigh Valley. This report will focus on the region s office, industrial, and flex space markets. IN THIS ISSUE Current Conditions... 2 Market Summary Broker Perspective (Cindy Feinberg)... 3 Net Absorption Asking Rent and Vacancy Distribution of Sales Transactions... 7 Range of All Sales Transactions Sales Top Transactions Employment by Industry Year-Over-Year Employment Growth by Industry Unemployment Rate Workforce Employment Growth

2 CURRENT CONDITIONS Overall, the commercial real estate market fundamentals continue to remains strong across the office, industrial and flex markets. The national office vacancy rates, as reported the 2015 NAR Commercial Real Estate Outlook report, have increased from 14.9% in 2014 to 16.0% in The Lehigh Valley office vacancy rate is significantly lower than the national average, and has improved from 11.79% in 2014 to 10.66% in 2015, with asking rental rates remaining relatively steady. The industrial real estate market remains strong in the Lehigh Valley, with 500KSF building vacancy rates at 1.2%. Medium and smaller buildings continue to have low vacancy rates as well. This sector, in particular, is poised to gain new inventory in the next few quarters, as distribution and logistics factors favor the Lehigh Valley location. The flex market consists of 241 buildings, and a total of 6.72M SF of space. Flex space vacancy rates remain low at 4.5%, similar to the vacancy in MARKET SUMMARY (OFFICE) REAL ESTATE CLASS A Inventory Bldgs Inventory SF 5.85M 0.21M 5.64M Deliveries SF 5.85M Vacant SF Percent 21.03% 20.80% 18.37% B Inventory Bldgs Inventory SF 12.35M 12.35M 12.33M Deliveries SF 0.00M 0.02M 0.00M Vacant SF Percent 8.13% 8.24% 11.40% C Inventory Bldgs Inventory SF 6.62M 6.62M 6.62M Deliveries SF 0.00M 0.00M 0.00M Vacant SF Percent 6.21% 6.45% 6.90% Combined Inventory Bldgs 1,394 1,394 1,389 Inventory SF 24.82M 24.82M 24.59M Deliveries SF 0.00M 0.00M 0.00M Vacant SF Percent 10.66% 10.72% 11.79% 2 COMMERCIAL REAL ESTATE REPORT 2015

3 MARKET SUMMARY (INDUSTRIAL) SF RANGE K Plus (SF) Inventory Bldgs Inventory SF 32.27M 32.27M 31.47M Deliveries SF 0.00M 0.00M 1.20M Vacant SF Percent 1.21% 3.07% 3.45% 100K to 499K (SF) Inventory Bldgs Inventory SF 37.40M 36.57M 35.81M Deliveries SF 0.83M 0.78M 0.30M Vacant SF Percent 9.71% 8.39% 9.42% 25K to 99K (SF) Inventory Bldgs Inventory SF 20.33M 20.33M 20.33M Deliveries SF 0.00M 0.00M 0.00M Vacant SF Percent 6.30% 5.92% 6.38% Less Than 25K (SF) Inventory Bldgs Inventory SF 7.99M 7.99M 7.99M Deliveries SF 0.00M 0.00M 0.00M Vacant SF Percent 6.44% 6.35% 6.19% MARKET SUMMARY (FLEX) REAL ESTATE CLASS Combined Inventory Bldgs Inventory SF 6.72M 6.72M 6.72M Deliveries SF 0.00M 0.00M 0.00M Vacant SF Percent 4.50% 3.73% 4.22% BROKER PERSPECTIVE The Lehigh Valley continues to see strength in the commercial, industrial and multi-family segments of the market. We expect this to continue in 2016 due to our location and the strength our economy. Cindy Feinberg Co-Founder, Feinberg Real Estate Advisors COMMERCIAL REAL ESTATE REPORT

4 NET ABSORPTION (OFFICE) 350K 300K 250K 200K 150K 100K 50K 0K -50K -100K -150K -200K -250K -300K -350K QTD Real Estate Class A B C NET ABSORPTION (INDUSTRIAL) 1750K 1500K 1250K Net Absorption (SF) 1000K 750K 500K 250K 0K -250K -500K Real Estate Class A B C 4 COMMERCIAL REAL ESTATE REPORT 2015

5 NET ABSORPTION (FLEX) 75K Net Absorption (SF) 50K 25K 0K -25K -50K -75K Office Gross Rent Overall $25 $23 $20 $18 $15 $26 $14 Vacant SF Percent 20% 15% 10% 5% 21% 6% Real Estate Class Flex Combined ASKING RENT AND VACANCY (OFFICE) Real Estate Class A B C Combined COMMERCIAL REAL ESTATE REPORT

6 ASKING RENT AND VACANCY (INDUSTRIAL) Vacant SF Percent NNN Rent Overall $5.00 $4.75 $4.50 $4.25 $4.00 $ % 25% 20% 15% 10% 5% $4.99 $ % 3% Real Estate Class A B C Combined ASKING RENT AND VACANCY (FLEX) NNN Rent Overall Vacant SF Percent $11.50 $11.00 $10.50 $10.00 $9.50 $9.00 $8.50 $ % 7.50% 6.00% 4.50% 3.00% $11.12 $ % 3.20% Real Estate Class Flex Combined 6 COMMERCIAL REAL ESTATE REPORT 2015

7 The Lehigh Valley s GDP is $35.4 billion, ranking 75th out of the 381 largest U.S. MSAs. It is higher than that of the state of Vermont and 94 other countries in the world. The finance, insurance and real estate sector is the largest contributor to the regional GDP ($5.24 billion), followed by professional and business services ($5.01 billion), and manufacturing ($4.95 billion) DISTRIBUTION OF SALES TRANSACTIONS Sold Price $0.07M $5.00M $10.00M $15.00M $17.58M Classification O ce Industrial Flex Source: Lehigh and Northampton County Real Estate Tax Records, LVEDC Research RANGE OF ALL SALES TRANSACTIONS Under $500K 2 7 $500K but less than $1M $1M but less than $2M $2M but less than $5M $5M but less than $10M 2 2 Over $10M Transactions O ce Industrial Flex Source: Lehigh and Northampton County Real Estate Tax Records, LVEDC Research COMMERCIAL REAL ESTATE REPORT

8 2015 COMMERCIAL/INDUSTRIAL REAL ESTATE SALES TRANSACTIONS 7535 Windsor Dr $17,583, Tilghman St $12,184,000 Photo Credits: Lehigh Valley Economic Development Corporation PROPERTY BUYER OF RECORD SELLER OF RECORD 7535 Windsor Dr* Brookwood Philadelphia I LLC Et AL Atlantic American Land Develop LLC 7350 Tilghman St* Brookwood Philadelphia I LLC Et AL IR Northlight II Associates LLC 7450 Tilghman St* Brookwood Philadelphia I LLC Et AL Atlantic American Land Develop LLC 6990 Snowdrift Dr (A&B)* Brookwood Philadelphia I LLC Et AL Atlantic American Land Develop LLC 6575 Snowdrift Dr* Brookwood Philadelphia I LLC Et AL Iron Run LTD Partnership V 7150 Windsor Dr* Brookwood Philadelphia I LLC Et AL Iron Run Venture II LLC 7360 Windsor Dr* Brookwood Philadelphia I LLC Et AL Atlantic American Land Develop LLC 7248 Tilghman St* Brookwood Philadelphia I LLC Et AL Iron Run LTD Partnership 7310 Tilghman St* Brookwood Philadelphia I LLC Et AL G & I VI 7310 Tilghman FE LLC 7010 Snowdrift Dr* Brookwood Philadelphia I LLC Et AL Atlantic American Land Develop LLC 1611 Pond Rd** P4-DTS LLC & P4 DSS LLC Paragon Partners LP 33 E Minor St / 151 E Minor St Borough of Emmaus Rodale Inc 1611 Pond Rd** P4-DTS LLC Tallman Hudders & Sorrentino Real Estate Partnership 3100 Charlotte Ave Bermuda Ridge LLC Exelis Inc 1611 Pond Rd** P4-DTS LLC Paragon Partners LP 826 Delaware Ave Jane Street LLC AG Real Estate Investments LLC 740 N Fenwick St AC Drive-In Holdings LLC Allentown Classic Motor Car 3971 Independence Dr Westeros LLC BR Holding Co Inc 3320 Hamilton Blvd Bottom-Down Leasing LLC Wood Family Real Estate LLC * These properties are part of a portfolio sale ** Three separate office condominiums were sold from within the same property 8 COMMERCIAL REAL ESTATE REPORT 2015

9 OVER $800K 1611 Pond Rd $2,216, Charlotte Ave $2,000,000 PRICE LOCATION CLASSIFICATION $17,583,000 Upper Macungie Township Office $12,184,000 Upper Macungie Township Office $10,897,000 Upper Macungie Township Office $8,568,000 Upper Macungie Township Office $5,547,000 Upper Macungie Township Flex $5,349,000 Upper Macungie Township Office $5,250,000 Upper Macungie Township Flex $4,755,000 Upper Macungie Township Flex $4,359,000 Upper Macungie Township Office $3,863,000 Upper Macungie Township Office $2,950,000 South Whitehall Township Office $2,950,000 Emmaus Borough Office $2,216,000 South Whitehall Township Office $2,000,000 Palmer Township Industrial $1,744,000 South Whitehall Township Office $935,000 Fountain Hill Office $934,100 City of Allentown Industrial $905,000 North Whitehall Township Industrial $860,000 South Whitehall Township Industrial Source: Lehigh and Northampton County Real Estate Tax Records, LVEDC Research COMMERCIAL REAL ESTATE REPORT

10 EMPLOYMENT BY INDUSTRY The health care industry remains the Lehigh Valley s top employer, making up 18.8 percent of total employment within the region for the second quarter of Lehigh Valley MSA Source: U.S. Bureau of Labor Statistics 12.7% Retail Trade 15.3% Professional and Business Services 6.7% Transportation and Utilities 4.2% Other Services 4.4% Wholesale Trade 3.7% Education 4.7% Financial Activities 4.3% Mining, Logging, and Construction 11.3% Manufacturing 18.8% Health 2.0% Information 12.1% Leisure and Hospitality Industry Name Education Financial Activities Health Information Leisure and Hospitality Manufacturing Mining, Logging, and Construction Other Services Professional and Business Services Retail Trade Transportation and Utilities Wholesale Trade YEAR-OVER-YEAR EMPLOYMENT GROWTH BY INDUSTRY The leisure and hospitality industry has grown 10.6 percent year-over-year from the third quarter of 2015 to the third quarter of The mining, logging, and construction industry has grown 2.2 percent in that time period. Industry Name Total Nonfarm* Mining, Logging, and Construction Manufacturing Trade, Transportation, and Utilities Information Financial Activities 0.3% 1,200 Jobs 2.2% 300 Jobs 0.0% 0 Jobs 0.1% 100 Jobs 0.0% 0 Jobs 1.3% 200 Jobs Professional and Business Services Education and Health Services -0.6% -300 Jobs -0.7% -500 Jobs Leisure and Hospitality 10.6% 3,800 Jobs Other Services Government -5.6% -2,200 Jobs -1.5% -200 Jobs -10% -5% 0% 5% 10% 15% 12-Month % Change Source: Lehigh Valley MSA, Sept 2015, 12-Month % Change (Preliminary) Source: U.S. Bureau of Labor Statistics * 355.9K Jobs 10 COMMERCIAL REAL ESTATE REPORT 2015

11 The Lehigh Valley s unemployment rate was 4.9 percent at the end of third quarter of 2015, seasonally-adjusted. That figure is down 0.6 percent from this time last year. The 4.9 percent regional unemployment rate is slightly better than the national unemployment rate, which was 5.1 percent as of the end of the third quarter of UNEMPLOYMENT RATE 10% 9% 8% 7% 6% 5% Lehigh County & Northampton County United States Seasonally-adjusted figures. Source: PA Center for Workforce Information & Analysis (CWIA) WORKFORCE EMPLOYMENT GROWTH 2.0% 1.5% 1.0% 0.5% 0.0% -0.5% Lehigh Valley MSA United States Total Nonfarm, Seasonally Adjusted, 12-Month% Change. Source: U.S. Bureau of Labor Statistics COMMERCIAL REAL ESTATE REPORT

12 IS YOUR BUSINESS EXPANDING? LEHIGH VALLEY ECONOMIC DEVELOPMENT CORP. CAN HELP. FINANCING RATES AS LOW AS 2% CALL OR VISIT LEHIGHVALLEY.ORG/FINANCING 2015 Lehigh Valley Economic Development Corporation. All Rights Reserved LVEDC CRE Report designed by Michelle Chrin Avenue C, Suite 200 Bethlehem, PA Phone: Fax: Lehigh Valley Come here. Grow here. Start here.