www.lehighvalley.org LEHIGH VALLEY COMMERCIAL REAL ESTATE REPORT OFFICE & INDUSTRIAL MARKETS ISSUE # 010 Q2 2017
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 to grow, reaching a total inventory of 10.7 million square-meters as of the second quarter of 2017. The region has seen 166,826 square-meters in deliveries so far this year, and 466,317 squaremeters are currently under construction. The region s overall industrial vacancy rates are 5 percent, and for properties specifically between 3,700 and 7,400 square-meters, the vacancy rate is 3.6 percent. The Lehigh Valley s year-over-year industrial rent growth (10.1 percent) is the second highest in the world, behind only the Seattle area (16.9 percent). The region s consistently increasing asking rates reflect a growing demand for industrial properties, and although the e-commerce sector tends to generate the most attention, our report indicates the need for smaller industrial properties is also significant. The regional office market has grown to 2.4 million square-meters, with 5,348 square-meters in year-to-date deliveries as of the second quarter of 2017. inventory in the Lehigh Valley has grown by an average of more than 27,000 square-meters annually over the last three years. A total of 33,866 square-meters is currently under construction. The region s office vacancy rate is at 7.7 percent. inventory has increased by 3.3 percent in the last three years, and total vacancy in the sector has decreased 11 percent in the last 12 months. A total of 80,000 square-meters of Class A office space has been added since 2014, and Class A asking rents have increased as the vacancy rate has dropped. The Lehigh Valley s unemployment rate has reached 5.2 percent as of June 2017, slightly higher than the 5 percent rate from the previous quarter, but lower than the 5.6 percent in September 2016. The regional unemployment rate is roughly on par with the Pennsylvania rate of 5 percent, but higher than the average national unemployment rate of 4.3 percent. - Jarrett Witt, LVEDC Director of Business Development BROKER PERSPECTIVE The Lehigh Valley and the I-78/I-81 Corridor continue to be one of the most dynamic warehouse development hot spots in the nation. Speculative construction continues to drive institutional investment and user demand. Over 490,000 square-meters are scheduled to be delivered in 2017 and 2018. The I-78/I-81 Corridor, which includes the Lehigh Valley, ranked fourth among major industrial markets in the country for total new product currently under construction, with 1.4 million square-meters. As we push into the third quarter, we are seeing leasing rates continue to push to historical highs. - Sean Bleiler, Senior Vice President, CBRE *CBRE Research s I-78/81 Corridor extends from the Scranton/Wilkes-Barre area south through the Lehigh Valley, Berks County, and the Lancaster, Lebanon, Harrisburg and York areas. 2 COMMERCIAL REAL ESTATE REPORT Q2 2017
Lehigh Valley SNAPSHOT: INDUSTRIAL MARKET MARKET SUMMARY E-commerce gets the headlines, but the need for smaller industrial properties is significant. 10.7 Million Total Inventory (SM) 14.9K Net Absorption (SM) $0.50 Average Asking Rent (NNN) 466.3K Total Under Construction (SM) 5.0% Total Vacancy 148.5K 2017 Net Absorption (SM) 10.1% YOY Rent Growth 166.8K YTD Deliveries (SM) SUPPLY & DEMAND (SM) ASKING RATE (PER SM) $0.504 488.8K 368.3K Supply grew by 107,396 SM, while demand decreased by 113,063 SM in Q2. $0.467 $0.497 156.1K 133.6K 137.1K $0.458 $0.464 25.3K 40.9K 29.7K 14.9K Q2 2016 Q3 2016 Q4 2016 Q1 2017 Q2 2017 Combined Industrial Space 0 Q2 2016 Q3 2016 SQUARE METERS Deliveries Q4 2016 Absorption Q1 2017 Q2 2017 Asking rate reflects growing demand for industrial properties. $ INDUSTRIAL PROPERTIES (3,700-7,400 SM) 6.1% 5.6% 5.3% 2012 2013 2014 Vacancy Rate 1.245MM 4.0% 3.9% 2015 2016 3.6% 2017 Square-meters of industrial properties of this size; unchanged from 2012 to 2017. New building deliveries since 2012 0 Net 2 change in # of properties since 2012 Average age of current inventory in years 49 Includes Flex. Source: CoStar (6-30-17 data set), LVEDC Research COMMERCIAL REAL ESTATE REPORT Q2 2017 3
Lehigh Valley SNAPSHOT: OFFICE MARKET MARKET SUMMARY inventory has grown by an average of more than 27,500 SM over the last three years. 2.4 Million Total Inventory (SM) 25.7K Net Absorption (SM) $1.42 Average Asking Rent (NNN) 33.9K Total Under Construction (SM) 7.7% Total Vacancy 34.5K 2017 Net Absorption (SM) 1.5% YOY Rent Growth 5.3K YTD Deliveries (SM) SUPPLY & DEMAND (SM) RENT & VACANCY RATE 27K 37.4K Supply grew by 5,348 SM, and demand increased by 16,978 SM in Q2. 25.7K 15.2% $1.694 $1.70 14.2% 15.3% 15.5% $1.698 $1.71 14.9% 4.1K 6.1K 0 0 8.7K 5.3K $1.688 Q2 2016 Q3 2016 Q4 2016 Q1 2017 Q2 2017 CLASS A Rent Vacancy Rate Q2 2016 SQUARE METERS Q3 2016 Deliveries (4.4K) Q4 2016 Absorption Q1 2017 Q2 2017 Class A asking rent increasing as vacancy rate drops. FOR RENT $ OFFICE PROPERTIES 3% inventory (SM) increased by 3.3% in the last 3 years. 85% 15% 97% 98% 2% 80,000 SM of Class A office space has been added since 2014. 1,149,560 SM 598,446 SM 645,211 SM 97% of region s Class B and C office space is over 10 years old. CLASS A CLASS B CLASS C More than 10 years old Less than 10 years old Includes Flex. Source: CoStar (6-30-17 data set), LVEDC Research 4 COMMERCIAL REAL ESTATE REPORT Q2 2017
BROKER PERSPECTIVE The open office design plan continues to be one of the hottest trends in commercial office space with a focus on a collaborative environment with a modern feel of glass walls, low cubicles, and building amenities that appeal to both millennials and baby boomers. With a focus on productivity and employee retention, many companies are offering amenities like fitness centers, onsite cafés, media centers and - in some cases - charging stations for electronic vehicles. Regardless of the size of the tenants, landlords will continue to be faced with the decision to invest in modern office space if they want to remain competitive in the market and attract quality tenants from both inside and outside the Lehigh Valley. Kelly Berfield, Senior Vice President, Colliers International COMMERCIAL REAL ESTATE REPORT Q2 2017 5
Q2 2017 COMMERCIAL REAL ESTATE TRANSACTIONS NOTABLE SALES PROPERTY BUYER SELLER 910 Nestle Way NFI Industries LNR Partners $41,500,000 SALE PRICE MUNICIPALITY CLASS Upper Macungie Twp. Industrial 2400 Baglyos Circle Sharp Packaging Daiichi Sankyo Inc. $14,000,000 Bethlehem Twp. Industrial 7360 Windsor Drive Infinera Corp. Brookwood Financial Partners LLC $12,400,000 Upper Macungie Twp. 2980 Avenue B Gelcor Realty Heffernan & Partners $5,140,000 Bethlehem Industrial 225 Main St. Equipto IR Capital LLC $4,850,000 Tatamy Industrial 3400 High Point Blvd. Valley Youth House Bethlehem LVCC $4,100,000 236 Brodhead Road 236 Brodhead Road LLC BB&T $3,050,000 632 Grammes Lane Jenstar Properties Inc. Plantique $2,850,000 Hanover Twp. (Northampton) Hanover Twp. (Northampton) Upper Macungie Twp. Industrial 90 Jacktown Road Gemini Bakery Equipment Co. Karl Brunner $1,700,000 Washington Twp. Industrial 7 Allen St. Wade Property Holding Bath LLC Penn Bath Properties Ltd. $1,700,000 Bath Industrial 6635 Tilghman St. IEC Property Holdings Osterman Propane LLC $1,400,000 Upper Macungie Twp. 2132 S. 12th St. 2132 South 12th Street LLC Lehigh Valley Hospital $1,250,000 Allentown 5858 Coplay Road Bazella Group Scheuermann Excavating $1,200,000 Whitehall Twp. Industrial 2333 Golden Key Road JT Legacy LLC Werley Truck Service & Sales $1,000,000 Weisenberg Twp. NOTABLE LEASES PROPERTY SM LANDLORD REPRESENTATIVE TENANT MUNICIPALITY CLASS West Hills Business Center 38,437 CBRE Weisenberg Twp. Industrial 400 Boulder Drive 33,723 Liberty Property Trust Upper Macungie Twp. Industrial 515 Hamilton St. (3 City Center) 7,613 City Center Lehigh Valley Health Network Allentown 7144 Daniels Drive 6,503 Warehouse Specialists Upper Macungie Twp. Industrial 6390 Hedgewood Drive 3,642 Liberty Property Trust GHG Logistics Upper Macungie Twp. Industrial 7660 Imperial Way 2,419 SVN Imperial Realty Upper Macungie Twp. 600 Hamilton St. (Tower 6) 2,044 City Center Allentown 944 Marcon Blvd. 1,934 PennCap Properties Hanover Twp. (Lehigh) Industrial 3300 Lehigh St. 1,858 South Mall Full Circle Training Allentown Commercial 3601 Sullivan Trail 1,579 Margaret Baurkot Cross Fit Advanced Forks Twp. Industrial 2040 Avenue C 1,579 NAI Summit Bethlehem 964 Postal Road 1,206 Cushman & Wakefield Stiltz Lifts USA Hanover Twp. (Lehigh) Industrial 600 Hamilton St. (Tower 6) 1,022 City Center CAPTRUST Allentown Source: Lehigh and Northampton County Real Estate Tax Records, LVEDC Research, CoStar 6 COMMERCIAL REAL ESTATE REPORT Q2 2017
Long gone are the days when most of our economic eggs were held in one big basket of heavy industry. Today, the Lehigh Valley s top four economic sectors are all within a few hundred million dollars of each other. Like a solid table, the Lehigh Valley economy is balanced on these four sturdy legs. The regional GDP of $37 billion is more than the entire state of Vermont and 97 countries in the world, and job creation in the Lehigh Valley has outranked every other region in Pennsylvania since the Great Recession. - Don Cunningham, President & CEO, Lehigh Valley Economic Development Corporation Lehigh Valley ECONOMIC CONDITIONS FASTEST GROWING EMPLOYMENT SECTORS 2012-2017 TOP INDUSTRIAL SECTORS (GDP) $5.6B MANUFACTURING $5.0B EDUCATION & HEALTH CARE ACCOMMODATION, HOTELS +2,626 Jobs 21.4% WAREHOUSING & STORAGE +6,692 Jobs 13.8% TELE- COMMUNICATIONS +596 Jobs 11.5% TRANSPORTATION SUPPORT +456 Jobs 11.4% DATA PROCESSING & HOSTING +492 Jobs 11.0% TRANSPORTATION MANUFACTURING 891 Jobs 10.2% $5.5B FINANCE & REAL ESTATE UNEMPLOYMENT RATE 9.0% 8.5% 8.0% 7.5% 7.0% 6.5% 6.0% $4.9B PROFESSIONAL & BUSINESS SERVICES Total GDP = $36.97 Billion 5.5% 5.2% 5.0% 5.0% 4.5% 4.3% 4.0% June-12 June-13 June-14 June-15 June-16 June-17 Lehigh Valley Pennsylvania United States Total nonfarm, Seasonally-adjusted figures. Source: JobsEQ. Data as of June 2017. COMMERCIAL REAL ESTATE REPORT Q2 2017 7
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. 2017 Lehigh Valley Economic Development Corporation. All Rights Reserved. 08.17 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. 2158 Avenue C, Suite 200 Bethlehem, PA 18017 Phone: 610-266-6775 Fax: 610-266-7623 www.lehighvalley.org