www.lehighvalley.org LEHIGH VALLEY COMMERCIAL REAL ESTATE REPORT OFFICE & INDUSTRIAL MARKETS ISSUE #015 Q3 2018
One of the core principles of the Economic Development Corporation (LVEDC) is to serve as the leading source of economic data and market intelligence on the 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. This report focuses on the region s office, industrial, and flex markets. CURRENT CONDITIONS The urban centers of the are continuing to drive office space construction in the region. The has seen 281,300 squarefeet of deliveries to the office market so far in 2018, and 270,000 square feet 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 303,800 square feet of office space currently under construction in the. The regional office market has a total inventory of 27 million square feet, of which 6.9 million square-feet (or roughly 25 percent) is Class A office space. The s office market has a vacancy rate of 7.7 percent, and overall asking rent rates currently stand at $14.88 per square foot, with Class A asking rent rates coming in at $18.70 per square foot. The region s industrial market continues to grow, reaching 121.2 million square feet as of the third quarter of 2018. There have been 2.7 million square-feet in deliveries this year so far, and another 4.9 million square feet are currently under construction. Out of 12 industrial buildings currently under construction, only five will be greater than 300,000 square feet in size. Another six will be between 100,000 square feet and 300,000 square feet, and one will be smaller than 100,000 square feet. Of the industrial buildings greater than 300,000 square feet in the, 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 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 BROKER PERSPECTIVE As we closed the third quarter, the 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 2 COMMERCIAL REAL ESTATE REPORT Q3 2018
SNAPSHOT: INDUSTRIAL MARKET MARKET SUMMARY The has 4.9 million square feet of industrial space under construction. 121.2 Million Total Inventory (SF) 2 Million Net Absorption (SF) $6.24 Average Asking Rent (NNN) 4.9 Million Total Under Construction (SF) 4.8% Total Vacancy 2.8 Million 2018 Net Absorption (SF) 14.1% YOY Rent Growth 2.7 Million YTD Deliveries (SF) SUPPLY & DEMAND (SF) ASKING RATE (PER SF) 2.0M 2.02M $6.24 1.3M 1.4M $5.78 1.03M $5.63 $5.76 $5.47 289K 365K 398K 246K Q3 2017 Q4 2017 Q1 2018 Q2 2018 Q3 2018 Combined Space Q3 2017 SQUARE FEET Q4 2017 Deliveries -278K Q1 2018 Absorption Q2 2018 Q3 2018 property rents have increased by 14.1 percent in the past year. $ INDUSTRIAL BUILDINGS (OVER 300,000 SF) BUILDINGS UNDER CONSTRUCTION USAGE OF BUILDINGS VACANCY RATE 8.1% > 300,000 SF = 5 100,000-300,000 SF = 6 < 100,000 SF = 1 Distribution 53% Manufacturing 26% Warehousing 12% Fulfillment 9% 4.0% 5.8% 6.5% Q3 2017 Q4 2017 Q1 2018 Q2 2018 Q3 2018 Buidings > 300,000 SF 5.5% Sources: CoStar, LVEDC Research COMMERCIAL REAL ESTATE REPORT Q3 2018 3
SNAPSHOT: OFFICE MARKET MARKET SUMMARY The has added 1.4 million square feet of office space in the last five years. 27.0 Million Total Inventory (SF) 110.9K Net Absorption (SF) $14.88 Average Asking Rent (NNN) 303.8K Total Under Construction (SF) 7.7% Total Vacancy 273.5K 2017 Net Absorption (SF) -3.2% YOY Rent Growth 281.3K YTD Deliveries (SF) SUPPLY & DEMAND (SF) ASKING RENT RATE 337K 270K $18.12 $18.60 $17.54 $18.13 $18.70 115K 168K 111K $15.37 $15.80 $14.31 $14.60 $14.88 0 11.4K 0-5.4K Q3 2017 Q4 2017 Q1 2018 Q2 2018 Q3 2018 REAL ESTATE CLASS A COMBINED Q3 2017 SQUARE FEET -123K Q4 2017 Q1 2018 Deliveries Absorption Q2 2018 Q3 2018 Office rent rebounded in Q3 but overall rent rates $ remain lower year-over-year. CLASS A OFFICE SPACE OFFICE SPACE ADDITIONS Projects Sources: CoStar, LVEDC Research Total SF Urban Core SF In pipeline 1 295,000 295,000 2018 2 270,000 270,000 2017 1 75,000 0 2016 2 356,000 66,000 2015 1 210,000 210,000 2014 1 296,000 296,000 OTHER MARKETS RETAIL, MEDICAL & MULTI-FAMILY PROJECTS Sources: CoStar Q3 Deliveries Under Construction Retail 10,000 SF 73,000 SF Medical 0 SF 180,000 SF Multi- Family 140 units 590 units 4 COMMERCIAL REAL ESTATE REPORT Q3 2018
BROKER PERSPECTIVE The 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 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 COMMERCIAL REAL ESTATE REPORT Q3 2018 5
Q3 2018 COMMERCIAL REAL ESTATE TRANSACTIONS NOTABLE SALES PROPERTY BUYER SELLER SALE PRICE MUNICIPALITY CLASS 1100 Mill Rd. TA Realty LLC IPT Iron Run DC LLC $21,000,000 2007 Drive Western Express Inc. TWI LLC $8,868,300 Bethlehem 600 Brighton St. Brighton LLC Ruhle & Kerr Associates $8,373,500 Fountain Hill 681 Grange Rd. Grange Mill LLC Jeffrey A. Faust Trust $4,000,000 111 Lehigh St. Luicanas LLC Narsu and Ramani Tatikola $1,800,000 Macungie 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 LEASES PROPERTY SF LANDLORD REPRESENTATIVE TENANT MUNICIPALITY CLASS 1620 Van Buren Rd. 1,015,740 CBRE UPS Palmer Twp. 7570 Park Way 157,500 Colliers Kane Warehousing Lower 6461 Snowdrift Rd. 101,290 Colliers 7663 Blvd. 65,000 CBRE Blue Ridge Home Fashions 4779 Hanoverville Rd. 34,000 NAI Summit Innovative Office Products Lower Nazareth Twp. 1110 American Parkway NE 25,000 CBRE St. Luke s University Health Network Hanover Twp. (Lehigh) Office 969 Postal Rd. 17,205 CBRE Shift4 7584 Morris Ct. 15,332 CBRE BioMedical Hanover Twp. (Lehigh) Source: Lehigh and Northampton County Real Estate Tax Records, LVEDC Research, CoStar 6 COMMERCIAL REAL ESTATE REPORT Q3 2018
The 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 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 Cunningham LVEDC President & CEO ECONOMIC CONDITIONS HOME OWNERSHIP 31.8% APARTMENT RENT Rent per month for 3- to 5-Star 2-Bedroom Apartment $1,232 68.2% HOUSEHOLDS Owner-occupied Renter-occupied Source: Census Bureau, American Community Survey $1,140 Q4 2015 Q1 2016 Source: CoStar Q2 2016 Q3 2016 Q4 2016 Q1 2017 Q2 2017 Q3 2017 Q4 2017 Q1 2018 Q2 2018 Q3 2018 COST OF LIVING UNEMPLOYMENT RATE How much more does it cost to live in the following areas versus the Lehigh Valley? 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% Source: Council for Community & Economic Research 8.0% 7.0% 6.0% 5.0% 4.0% 3.0% Sept-13 Sept-14 Sept-15 Sept-16 Sept-17 Sept-18 Pennsylvania United States Total nonfarm, Seasonally-adjusted figures. Source: PA Dept of Labor and Industry 4.2% 4.1% 3.9% COMMERCIAL REAL ESTATE REPORT Q3 2018 7
Our Mission The mission of the Economic Development Corporation is to market the economic assets of the and to create partnerships to lead the recruitment, growth, and retention of employers. Our Vision Our vision is of a diverse 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 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 economy Expand public and private LVEDC investment and build partnerships for economic growth 2018 Economic Development Corporation. All Rights Reserved. 11.18 LVEDC Commercial Real Estate Report designed by Michelle Chrin. Come here. Start here. Grow here. 2158 Avenue C, Suite 200 Bethlehem, PA 18017 Phone: 610-266-6775 Fax: 610-266-7623 www.lehighvalley.org