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www.lehighvalley.org
Q1 2017
LEHIGH VALLEY COMMERCIAL REAL ESTATE REPORT
ISSUE # 009
OFFICE & INDUSTRIAL MARKETS
2 COMMERCIAL REAL ESTATE REPORT • Q4 2016
CURRENT CONDITIONS
The Lehigh Valley industrial market continues its steady rate of growth, reaching a total inventory of 113.8 million square-feet as of the first quarter of 2017. The region saw 320,208 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 2016, and from 6.7 percent in the first quarter of 2016. Asking rates per square-foot are currently averaging $5.35, roughly the same as the $4.84 rate in Q1 2016.
The regional office market remains at 25.6 million square-feet, having seen no new deliveries in the first quarter of 2017. 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 2016. 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 2016. Likewise, asking rates per square-foot are currently averaging $15.64, compared to $15.12 in the Q1 2016.
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 Industrial Blvd. The property was sold for $36.5 billion to Ridgeline Property Group of Atlanta, which has publicly announced plans to build two 730,080 square-foot warehouses on the property. Additionally, this quarter marked the $35.7 billion sale of 2320 Newlins Mill Road of the Majestic Athletic facility at 2320 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 2017 (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
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 “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
3COMMERCIAL REAL ESTATE REPORT • Q4 2016
VACANCY RATE (PERCENT)
INDUSTRIAL MARKET
113.8 MillionTotal Inventory (SF)
1.4 MillionNet Absorption (SF)
$5.35Average Asking Rent (NNN)
6.1 MillionTotal Under Construction (SF)
4.0%Total Vacancy
1.4 Million2017 Net Absorption (SF)
10.5%YOY Rent Growth
320,208YTD Deliveries (SF)
Includes Flex. Source: CoStar (3-31-17 data set), LVEDC Research
MARKET SUMMARY
SUPPLY & DEMAND
SF
Deliveries (Supply) Absorption (Demand)
-1,000K
0
1,000K
2,000K
3,000K
4,000K
5,000K
6,000KQ1 2017Q4 2016Q3 2016Q2 2016Q1 2016
(109K)
446K
1,668K
3,969K
1,450K1,748K
272K0
5,260K
320K
ASKING RATE (PER SF)
Real Estate Class
Vaca
ncy
Perc
ent
500K 100K to 499K 20K to 99K Combined
0%
2.5%
5%
7.5%
10%
Q1 2017Q4 2016Q3 2016Q2 2016Q1 2016
5.8%
4%
3.5%
2.6%
8%
5.7%
5.1%
4.3%
6.9%
4.8%
3.7%
3.6%
9%
6.4%
5.3%
4.3%
9.6%
6.7%
4.5%
5.4%
Q1 2017Q4 2016Q3 2016Q2 2016Q1 2016$4.00
$4.50
$5.00
$5.50
$6.00
$5.62$5.59$5.53$5.52$5.54
$4.89
$4.46
$4.46$4.35$4.28
$4.19$4.19
$4.64$4.76
$4.59
$5.35
$5.03$4.99$4.93$4.84
4 COMMERCIAL REAL ESTATE REPORT • Q4 2016
VACANCY RATE (PERCENT)
OFFICE MARKET
25.6 MillionTotal Inventory (SF)
96,500 Net Absorption (SF)
$15.64Average Asking Rent
314,565Total Under Construction (SF)
8.8%Total Vacancy
96,400 2017 Net Absorption (SF)
3.4%YOY Rent Growth
0YTD Deliveries (SF)
Source: CoStar (12/31/16 data set), LVEDC Research
MARKET SUMMARY
SUPPLY & DEMAND
SF
Deliveries (Supply) Absorption (Demand)
Q1 2017Q4 2016Q3 2016Q2 2016Q1 2016
-100k
0
100k
200k
300k
500k
400k
72,933
397,827
47,002
-47,182
96,500
0
290,265
0
66,073
0
ASKING RATE (PER SF)
Q1 2017Q4 2016Q2 2016Q1 2016 Q3 2016
Vaca
ncy
Perc
ent
4%
8%
10%
12%
15%
18%
8.8%9.2%8.8%8.9%9.5%
6%6%4.9%5.1%
6%
6.5%7.4%7.7%7.5%7.8%
16.3%16.1%15%
16%16.9%
Real Estate Class A B C Combined
Q1 2017Q4 2016Q3 2016Q2 2016Q1 2016$11.00
$12.60
$14.20
$15.80
$17.40
$19.00
$15.64
$14.89$15.03$15.06$15.12
$14.29
$12.36$12.51$11.96$11.88
$14.40
$14.07$14.11$14.28$14.44
$18.28$18.17$18.30$18.24$18.25
5COMMERCIAL REAL ESTATE REPORT • Q4 2016
BROKER PERSPECTIVE “The Lehigh Valley office market has seen robust activity throughout the first quarter of 2017 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
6 COMMERCIAL REAL ESTATE REPORT • Q4 2016
Source: Lehigh and Northampton County Real Estate Tax Records, LVEDC Research, CoStar
Q1 2017 COMMERCIAL REAL ESTATE TRANSACTIONS
PROPERTY SFTENANT
REPRESENTATIVELANDLORD
REPRESENTATIVE TENANT MUNICIPALITY CLASS
7248 Industrial Blvd. 201,650 Liberty Property Trust Kane Upper Macungie
Twp Industrial
7165 Ambassador Dr. 122,400 NAI Summit Liberty Property Trust HT Lyons Inc. Upper Macungie
Twp Industrial
7542 Morris Court 121,064 Lee & Associates KGP Telecommunications
Upper Macungie Twp Industrial
8250 Industrial Blvd. 70,000 Liberty Property Trust
Nexus Distribution Corp.
Upper Macungie Twp Industrial
2251 Newlins Mill Rd. 48,035 Cushman & Wakefield
Exeter Property Group
II-VI OptoElectronic Devices Inc. Palmer Twp Industrial
749 Roble Rd. 22,800 NAI Summit TXX Services Hanover Twp (Lehigh) Industrial
3rd and New St. 20,498 CBRE Bethlehem Office
3rd and New St. 20,498 CBRE Bethlehem Office
2040 Avenue C 15,400 NAI Summit Health Network Laboratories Bethlehem Office
924 Marcon Blvd. 9,960 NAI Summit Lennox Industries Hanover Twp (Lehigh) Industrial
2820-2830 Emrick Blvd. 8,180 Berger-Epstein Associates United Electric Bethlehem Twp Office
NOTABLE LEASES
PROPERTY BUYER SELLER SALE PRICE MUNICIPALITY CLASS
7352 Industrial Blvd. Ridgeline Property Group Kraft Heinz Co. $36,485,000 Upper Macungie Twp. Industrial
2320 Newlins Mill Road G&I IX Newlins Mill LLC Cabot II PA3B01 LP $35,657,576 Palmer Twp Industrial
4750 Tilghman St. Tilghman Holdings LLC Republic Allentown $4,900,000 S. Whitehall Twp. Commercial
6980 Snowdrift RoadPenwood Real Estate Investment Management LLC
BlueLinx Holdings Inc. $4,650,000 Upper
Macungie Twp. Industrial
1379 S. Delaware Drive AWT Enterprises LLC Formica Corp. $3,800,000 Upper Mount
Bethel Twp. Industrial
1620 Pond Road 1620 Pond LLC Limerick PA Gas Station LLC $3,095,000 S. Whitehall Twp. Office
7020 Snowdrift RoadPenwood Real Estate Investment Management LLC
7020 Snowdrift Investors LLC $2,630,000 Upper
Macungie Twp. Industrial
1120 S. 25th St. Lidl US Lawrence O'Neil $2,000,000 Wilson Industrial
1630 Spillman Drive Sann9 LLC (Candlewood Suites)
Lehigh Valley Industrial Park Inc. $1,700,000 Bethlehem Industrial
120-170 W. Union St. 120-160 Union Street LLC Emili Enterprises $1,239,300 Allentown Industrial
5050 Crackersport Road
New Enterprise Stone and Lime Co., Inc. Berks Products Corp. $982,528 S. Whitehall Twp. Industrial
NOTABLE SALES
7COMMERCIAL REAL ESTATE REPORT • Q4 2016
Q1 2017 COMMERCIAL REAL ESTATE TRANSACTIONS
ECONOMIC CONDITIONS
Industry NameAccommodation& Food Services
Administrative Services
Arts, Entertainment,& Recreation
Construction
Educational Services
Finance & Insurance
Health Care &Social Assistance
Information
Transportation& WarehousingManagementof Companies
Manufacturing
Professional Services
PublicAdministration
Other Services
Real Estate
Retail Trade
Wholesale Trade
Other0
10K
20K
30K
40K
50K
60K
EMPLOYMENT BY INDUSTRY
Q4’16Q4’15Q4’14Q4’13Q4’120.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
8.0%
9.0%
10.0%
Lehigh Valley Pennsylvania United States
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
Mar-12 Mar-13 Mar-14 Mar-15 Mar-16 Mar-17
Total nonfarm, Seasonally-adjusted figures. Source: JobsEQ®. Data as of Mar 2017.
LABOR MARKET JOB GROWTH UNEMPLOYMENT RATE
“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
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 54,000 jobs within the region. The Lehigh Valley’s unemployment rate is 4.8 percent as of March 2017, which is roughly aligned with average unemployment rates in Pennsylvania (4.7 percent) and the United States (4.5 percent).
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 serve as a regional shared services and resource center to help businesses to come, start, and grow here.
Our VisionOur 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.
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 ValleyCome here. Start here. Grow here.
©2017 Lehigh Valley Econom
ic Developm
ent Corporation. All R
ights Reserved. 05.17
LVEDC
Com
mercial R
eal Estate Report designed by M
ichelle Chrin.
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