LEHIGH VALLEY COMMERCIAL REAL ESTATE REPORT OFFICE & INDUSTRIAL MARKETS

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1 LEHIGH VALLEY COMMERCIAL REAL ESTATE REPORT OFFICE & INDUSTRIAL MARKETS ISSUE # 9 Q1 217

2 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. CURRENT CONDITIONS The Lehigh Valley industrial market continues its steady rate of growth, reaching a total inventory of million square-feet as of the first quarter of 217. The region saw 32,28 square-feet of deliveries to the industrial market over the quarter, and about 6.1 million square-feet are currently under construction in the Lehigh Valley. That is the equivalent of 5.36 percent of the current industrial market. Regional industrial vacancy rates have dropped to 4 percent, down from 5.7 percent in the fourth quarter of 216, and from 6.7 percent in the first quarter of 216. Asking rates per square-foot are currently averaging $5.35, roughly the same as the $4.84 rate in Q The regional office market remains at 25.6 million square-feet, having seen no new deliveries in the first quarter of 217. A total of 314,565 square-feet are currently under construction in the Lehigh Valley office market. For comparison purposes, the regional saw 356,338 square-feet in total office market deliveries in 216. Vacancy rates have remained largely steady throughout the year, currently coming in at 8.8 percent, compared to 9.5 percent in the first quarter of 216. Likewise, asking rates per square-foot are currently averaging $15.64, compared to $15.12 in the Q Among the most noteworthy commercial real estate transactions of the quarter was Kraft Heinz Co. s sale of its Upper Macungie Township facility at 7532 Blvd. The property was sold for $36.5 billion to Ridgeline Property Group of Atlanta, which has publicly announced plans to build two 73,8 square-foot warehouses on the property. Additionally, this quarter marked the $35.7 billion sale of 232 Newlins Mill Road of the Majestic Athletic facility at 232 Newlins Mill Road in Palmer Township to G&I IX Newlins Mill LLC. V.F. Corp has announced it is selling its Licensed Sports Group business (which includes Majestic Athletics) to Fanatics Inc., which will continue manufacturing on-field uniforms for Major League Baseball players in the Palmer Township facility. The Lehigh Valley s unemployment rate has decreased to 4.8 percent as of March 217 (compared to 5.6 percent six months earlier) and is roughly on par with the average unemployment rates in Pennsylvania (4.7 percent) and the United States (4.5 percent). - Jarrett Witt, LVEDC Director of Business Development BROKER PERSPECTIVE The Lehigh Valley remains well positioned within the Northeast U.S. industrial market for continued growth of manufacturing, distribution and now flex industrial. The capital markets have historically been more focused on bulk distribution, but have now demonstrated an interest in flex industrial as evidenced by recent transaction activity. This dynamic is expected to drive additional development of flex industrial which is well timed as we are seeing an increase in demand for this product type. - Gerry Blinebury, Executive Director, Cushman & Wakefield 2 COMMERCIAL REAL ESTATE REPORT Q4 216

3 INDUSTRIAL MARKET MARKET SUMMARY Million Total Inventory (SF) 1.4 Million Net Absorption (SF) $5.35 Average Asking Rent (NNN) 6.1 Million Total Under Construction (SF) 4.% Total Vacancy 1.4 Million 217 Net Absorption (SF) 1.5% YOY Rent Growth 32,28 YTD Deliveries (SF) SUPPLY & DEMAND 6,K 5,K Q1 216 Q2 216 Q ,26K Q4 216 Q ,K 3,969K SF 3,K 2,K 1,748K 1,668K 1,45K 1,K (19K) 272K 446K 32K -1,K Deliveries (Supply) Absorption (Demand) VACANCY RATE (PERCENT) ASKING RATE (PER SF) Vacancy Percent 1% 7.5% 5% 2.5% 9.6% 6.7% 5.4% 4.5% 9% 6.4% 5.3% 4.3% 6.9% 4.8% 3.7% 3.6% 8% 5.7% 5.1% 4.3% 5.8% 4% 3.5% 2.6% $6. $5.5 $5. $4.5 $5.54 $4.84 $4.59 $4.28 $5.52 $4.93 $4.76 $4.35 $5.53 $4.99 $4.64 $4.46 $5.59 $5.3 $4.46 $4.19 $5.62 $5.35 $4.89 $4.19 % Q1 216 Q2 216 Q3 216 Q4 216 Q1 217 $4. Q1 216 Q2 216 Q3 216 Q4 216 Q1 217 Real Estate Class 5K 1K to 499K 2K to 99K Combined Includes Flex. Source: CoStar ( data set), LVEDC Research COMMERCIAL REAL ESTATE REPORT Q

4 OFFICE MARKET MARKET SUMMARY 25.6 Million Total Inventory (SF) 96,5 Net Absorption (SF) $15.64 Average Asking Rent 314,565 Total Under Construction (SF) 8.8% Total Vacancy 96,4 217 Net Absorption (SF) 3.4% YOY Rent Growth YTD Deliveries (SF) SUPPLY & DEMAND 5k Q1 216 Q2 216 Q3 216 Q4 216 Q k 397,827 3k 29,265 SF 2k 1k 72,933 47,2 66,73 96,5-1k -47,182 Deliveries (Supply) Absorption (Demand) VACANCY RATE (PERCENT) ASKING RATE (PER SF) 18% 16.9% 16% 16.1% 16.3% $19. $18.25 $18.24 $18.3 $18.17 $ % 15% $17.4 Vacancy Percent 12% 1% 8% 4% 9.5% 7.8% 6% 8.9% 7.5% 5.1% 8.8% 7.7% 4.9% Q1 216 Q2 216 Q % 7.4% 6% Q % 6.5% 6% Q1 217 $15.8 $15.12 $14.2 $14.44 $12.6 $11.88 $11. Q1 216 $15.6 $14.28 $11.96 Q2 216 $15.3 $14.11 $12.51 Q3 216 $14.89 $14.7 $12.36 Q4 216 $15.64 $14.4 $14.29 Q1 217 Real Estate Class A B C Combined Source: CoStar (12/31/16 data set), LVEDC Research 4 COMMERCIAL REAL ESTATE REPORT Q4 216

5 BROKER PERSPECTIVE The Lehigh Valley office market has seen robust activity throughout the first quarter of 217 comprised of both Lehigh Valley companies expanding as well as new tenants touring and entering the market. With the addition of a few blocks of Class B space to the inventory, landlords could see an increase in concessions as negotiations are transacted in that market segment. The lack of significant vacancy in the suburban trophy category will continue to trend until development commences on projects currently in the pipeline. - Jessica Goffredo, Leasing Director, PennCap Properties COMMERCIAL REAL ESTATE REPORT Q

6 Q1 217 COMMERCIAL REAL ESTATE TRANSACTIONS NOTABLE SALES PROPERTY BUYER SELLER SALE PRICE MUNICIPALITY CLASS 7352 Blvd. Ridgeline Property Group Kraft Heinz Co. $36,485, 232 Newlins Mill Road Upper Macungie Twp. G&I IX Newlins Mill LLC Cabot II PA3B1 LP $35,657,576 Palmer Twp 475 Tilghman St. Tilghman Holdings LLC Republic Allentown $4,9, S. Whitehall Twp. Commercial 698 Snowdrift Road Penwood Real Estate Investment Management LLC BlueLinx Holdings Inc. $4,65, Upper Macungie Twp S. Delaware Drive 162 Pond Road 162 Pond LLC AWT Enterprises LLC Formica Corp. $3,8, Limerick PA Gas Station LLC Upper Mount Bethel Twp. $3,95, S. Whitehall Twp. Office 72 Snowdrift Road Penwood Real Estate Investment Management LLC 72 Snowdrift Investors LLC $2,63, Upper Macungie Twp. 112 S. 25th St. Lidl US Lawrence O'Neil $2,, Wilson 163 Spillman Drive Sann9 LLC (Candlewood Suites) Lehigh Valley Park Inc. $1,7, Bethlehem W. Union St Union Street LLC Emili Enterprises $1,239,3 Allentown 55 Crackersport Road New Enterprise Stone and Lime Co., Inc. Berks Products Corp. $982,528 S. Whitehall Twp. NOTABLE LEASES PROPERTY SF 7248 Blvd. 21,65 TENANT REPRESENTATIVE 7165 Ambassador Dr. 122,4 NAI Summit LANDLORD REPRESENTATIVE TENANT MUNICIPALITY CLASS Liberty Property Trust Liberty Property Trust 7542 Morris Court 121,64 Lee & Associates 825 Blvd. 7, 2251 Newlins Mill Rd. 48,35 Cushman & Wakefield Liberty Property Trust Exeter Property Group Kane HT Lyons Inc. KGP Telecommunications Nexus Distribution Corp. II-VI OptoElectronic Devices Inc. 749 Roble Rd. 22,8 NAI Summit TXX Services Upper Macungie Twp Upper Macungie Twp Upper Macungie Twp Upper Macungie Twp Palmer Twp Hanover Twp (Lehigh) 3rd and New St. 2,498 CBRE Bethlehem Office 3rd and New St. 2,498 CBRE Bethlehem Office 24 Avenue C 15,4 NAI Summit Health Network Laboratories 924 Marcon Blvd. 9,96 NAI Summit Lennox Industries Emrick Blvd. 8,18 Berger-Epstein Associates Bethlehem Hanover Twp (Lehigh) Office United Electric Bethlehem Twp Office Source: Lehigh and Northampton County Real Estate Tax Records, LVEDC Research, CoStar 6 COMMERCIAL REAL ESTATE REPORT Q4 216

7 Site Selection magazine recently listed the Lehigh Valley as the top region of its size in the Northeastern United States. If you look at all regions in the Northeast regardless of size, the Lehigh Valley still ranks in the Top 5, placing only behind the much larger metropolitan statistical areas of New York City, Philadelphia, Pittsburgh, and Boston. The Lehigh Valley economy is clearly punching well above its weight class. - Don Cunningham, President & CEO, Lehigh Valley Economic Development Corporation ECONOMIC CONDITIONS EMPLOYMENT BY INDUSTRY 6K Industry Name Accommodation Finance & Insurance Professional 5K & Food Services Services Health Care & 4K Administrative Social Assistance Public Services Administration Information 3K Arts, Entertainment, Other Services & Recreation Transportation & Warehousing Real Estate 2K Construction Management Retail Trade 1K Educational of Companies Services Wholesale Trade Manufacturing Other Quarterly Census of Employment and Wages - Bureau of Labor Statistics, Pennsylvania Department of Labor and Industry The health care industry remains the Lehigh Valley s top employer, making up just over 54, jobs within the region. The Lehigh Valley s unemployment rate is 4.8 percent as of March 217, which is roughly aligned with average unemployment rates in Pennsylvania (4.7 percent) and the United States (4.5 percent). LABOR MARKET JOB GROWTH 2.5% UNEMPLOYMENT RATE 1.% 9.% 2.% 8.% 7.% 1.5% 6.% 5.% 1.% 4.% 3.%.5% 2.% 1.% Q4 12 Q4 13 Q4 14 Q4 15.% Q4 16.% Mar-12 Mar-13 Mar-14 Mar-15 Mar-16 Mar-17 Lehigh Valley Pennsylvania United States Total nonfarm, Seasonally-adjusted figures. Source: JobsEQ. Data as of Mar 217. COMMERCIAL REAL ESTATE REPORT Q

8 Our Mission The 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 Vision Our 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. 217 Lehigh Valley Economic Development Corporation. All Rights Reserved LVEDC Commercial Real Estate Report designed by Michelle Chrin. 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 Valley Come here. Start here. Grow here Avenue C, Suite 2 Bethlehem, PA 1817 Phone: Fax: