www.lehighvalley.org LEHIGH VALLEY COMMERCIAL REAL ESTATE REPORT OFFICE & INDUSTRIAL MARKETS ISSUE # 008 Q4 2016
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 grew by nearly 7 percent over the course of 2016, reaching a total inventory of 113.6 million square-feet. The region saw a total of 7 million square-feet in net absorption and 7.3 million in deliveries to the industrial market in 2016. Industrial vacancy rates declined from 6.5 percent in the first quarter of the year to a current rate of 4.9 percent, while asking rates per square-foot rose from $4.85 at the beginning of the year to $5.04 by the fourth quarter. The regional office market saw 356,338 square-feet in deliveries in 2016, for a total inventory of 25.6 million square-feet. Vacancy rates have remained largely steady throughout the year, currently coming in at 9.1 percent, compared to 9.4 percent in the first quarter of 2016. Likewise, asking rates per square-foot are currently averaging $14.89, compared to $15.11 in the first quarter of the year. The most noteworthy addition to the Lehigh Valley office market was Guardian Life Insurance s new office complex at 6255 Sterners Way in Hanover Township, Northampton County. Guardian, one of the nation s largest mutual life insurers, consolidated its previous regional headquarters which were spread across three buildings in the region into one three-story, 281,680-square-foot facility, a testament to the future growth of the company and to its commitment to the Lehigh Valley. The Lehigh Valley s gross domestic product (GDP) reached a record-high $36.97 billion in 2015 (the most recent year data is available), which marks a 2.2 percent increase over the previous year. This continues a pattern of consistent growth for the region, which has seen a GDP increase of at least $750 million each year since 2010, when it was $31.34 billion. The Lehigh Valley GDP is larger than that of 97 other countries in the world and the entire state of Vermont ($30.4 billion), and is only $1.65 billion behind the GDP of the state of Wyoming ($38.62 billion). Notably, manufacturing is now the region s top economic sector, generating $5.56 billion or 15 percent of the overall GDP. - Jarrett Witt, LVEDC Director of Business Development BROKER PERSPECTIVE Overall, LVIP is benefitting from a strengthening Lehigh Valley industrial market as we ve attracted a number of manufacturers to LVIP VII. There continues to be a serious shortage of Class A industrial space in the range of 10,000 to 50,000 square feet, which we need to support small business growth in the Lehigh Valley. LVIP is evaluating initiatives to address this need. - Kerry Wrobel, President, Lehigh Valley Industrial Park 2 COMMERCIAL REAL ESTATE REPORT Q4 2016
INDUSTRIAL MARKET MARKET SUMMARY 113.6 Million Total Inventory (SF) 4.9 Million Net Absorption (SF) $5.04 Average Asking Rent (NNN) 210,000 Total Under Construction (SF) 4.9% Total Vacancy 7 Million 2016 Net Absorption (SF) 4.3% YOY Rent Growth 7.3 Million YTD Deliveries (SF) SUPPLY & DEMAND 6,000K 5,000K 2015 Q4 2016 Q1 2016 Q2 2016 Q3 2016 Q4 5,262K 4,889K 4,000K 3,000K SF 2,000K 1,996K 1,748K 1,629K 1,000K 0K 994K 63K 454K 261K Absorption (demand) Deliveries (supply) VACANCY RATE (PERCENT) ASKING RATE (PER SF) Vacancy Percent 10% 8% 6% 4% 2% 0% 9.3% 9.0% 8.1% 6.5% 6.3% 5.0% 5.4% 5.3% 4.0% 4.2% 4.1% 2.3% 6.9% 5.6% 4.8% 5.1% 4.9% 3.7% 4.0% 3.4% 2015 Q4 2016 Q1 2016 Q2 2016 Q3 2016 Q4 $5.60 $5.40 $5.20 $5.00 $4.80 $4.60 $4.40 $4.20 $5.54 $5.59 $5.52 $5.53 $5.30 $5.00 $5.04 $4.94 $4.83 $4.85 $4.76 $4.59 $4.59 $4.64 $4.46 $4.46 $4.35 $4.23 $4.28 $4.19 2015 Q4 2016 Q1 2016 Q2 2016 Q3 2016 Q4 Real Estate Class 500K 100K to 499K 20K to 99K Combined Includes Flex. Source: CoStar (12/31/16 data set), LVEDC Research COMMERCIAL REAL ESTATE REPORT Q4 2016 3
OFFICE MARKET MARKET SUMMARY 25.6 Million Total Inventory (SF) (46,682) Net Absorption (SF) $14.89 Average Asking Rent - Total Under Construction (SF) 9.1% Total Vacancy 504,494 2016 Net Absorption (SF) -1.3 % YOY Rent Growth 356,338 YTD Deliveries (SF) SUPPLY & DEMAND 400K 2015 Q4 2016 Q1 2016 Q2 2016 Q3 2016 Q4 402K 300K 290K 200K SF 100K 0K 57K 0 102K 0 48K 0 66K -100K -47K Deliveries (supply) Absorption (demand) Vacancy Percent VACANCY RATE (PERCENT) 25% 20.3% 20% 17.7% 16.7% 16.7% 15.7% 15% 10% 9.8% 9.4% 8.8% 8.6% 9.1% 7.2% 7.6% 7.3% 7.5% 7.2% 5% 5.6% 5.5% 4.7% 5.5% 4.5% ASKING RATE (PER SF) $18 $16 $14 $12 $18.29 $18.25 $18.24 $18.30 $18.17 $15.09 $15.11 $15.05 $15.02 $14.89 $14.28 $14.43 $14.27 $14.10 $14.06 $12.51 $12.13 $12.36 $11.87 $11.96 0% $10 2015 Q4 2016 Q1 2016 Q2 2016 Q3 2016 Q4 2015 Q4 2016 Q1 2016 Q2 2016 Q3 2016 Q4 Real Estate Class A B C Combined Source: CoStar (12/31/16 data set), LVEDC Research 4 COMMERCIAL REAL ESTATE REPORT Q4 2016
BROKER PERSPECTIVE The Lehigh Valley office market closed 2016 with exceptionally low vacancy rates, particularly in Class A product. With the completion of two new office buildings with more than 100,000 square feet of available space in the Allentown NIZ and up to a million additional square feet in the development pipeline, expect tenant leverage to improve in 2017 if current space requirements remain steady. - Lauren Gilchrist Vice President, Director of Research for Philadelphia, JLL COMMERCIAL REAL ESTATE REPORT Q4 2016 5
Q4 2016 COMMERCIAL REAL ESTATE TRANSACTIONS NOTABLE SALES PROPERTY BUYER SELLER SALE PRICE MUNICIPALITY CLASS 7055 Ambassador Dr W LHV Portfolio Investors LLC Cam 7055 Ambassador LLC $11,250,000 Upper Macungie Twp Industrial 6690 Grant Way LHV Portfolio Investors LLC Cam 6670 Grant Way LLC $6,300,000 Upper Macungie Twp Industrial 6670 Grant Way LHV Portfolio Investors LLC Cam 6670 Grant Way LLC $5,400,000 Upper Macungie Twp Industrial 6810 W Tilghman St LHV Portfolio Investors LLC Cam 6810 Tilghman LLC $2,275,000 Upper Macungie Twp Industrial 4000 N Miller Cir Lineage PABethlehem RE LLC Icon Kraft Owner Pool 2 LLC $32,100,000 Bethlehem Twp Industrial 8449 Congdon Hill Dr Liberty Property Limited Partnership Jaindl David M $11,762,800 Lower Macungie Twp Industrial 74 W Broad St 74 West Broad LLC Liberty Property Limited Partnership $11,200,000 Bethlehem Office 2120 Newlins Mill Rd Werner Enterprises Inc Fehnel Clarence H & Carol J $6,251,150 Palmer Twp Industrial 2024 Lehigh St Lehigh Valley Hospital Inc 1460 Tatamy Rd Werner Enterprises Inc Health Network Laboratories LP Raub Anderson C Sr & Viola R $6,200,000 Allentown Office $5,955,250 Palmer Twp Industrial 3262 Schoeneck Rd Schoeneck Road Development Jaindl Fred J $3,400,000 Lower Macungie Twp Industrial W Penn Ave Liberty Property Limited Partnership Jaindl David M $3,293,400 Alburtis Industrial 200 Hilton Street West Pendho LLC Glendon Properties Inc $2,700,000 Glendon Industrial 1990 Highland Ave Triple Net Investments IX Highland Avenue Realty LLC $2,675,000 Bethlehem Twp Office 3135 Schoenersville Rd USA Industrial Holdings LLC Marcon Ruth $2,625,000 Bethlehem Industrial 2233 26Th St SW Allentown Wismarq Bouras Acquisition Inc $2,460,000 Allentown Industrial 7020 Snowdrift Rd 7020 Snowdrift Investors LLC Cam 7020 Snowdrift LLC $2,275,000 Upper Macungie Twp Industrial NOTABLE LEASES PROPERTY SF TENANT REPRESENTATIVE LANDLORD REPRESENTATIVE TENANT MUNICIPALITY CLASS 4863 Hanoverville Rd 527,120 JLL JLL Barry Callebaut Lower Nazareth Twp Industrial 5210 Jaindl Blvd 130,971 JLL CBRE Tesla Motors Hanover Twp (Northampton) Industrial 100 Cascade Dr 50,280 CBRE CBRE FMI Hanover Twp (Lehigh) Industrial 1 S 3rd St 19,500 Prudential Paul Ford Realtors VM Development Lafayette College Easton Office 914 Marcon Blvd 16,800 McGowan Corporate Real Estate Advisors NAI Summit Folz Hanover Twp (Lehigh) Industrial 6813 Ruppsville Rd 16,000 Veraxia CBRE Shangys Upper Macungie Twp Industrial 9999 Hamilton Blvd 12,212 NAI Summit CBRE Versum Materials US LLC Upper Macungie Twp Office/Lab 861 Marcon Blvd 11,987 CBRE Hanover Twp (Lehigh) Office 1 S 3rd St 6,500 LM Information Delivery VM Development LM Information Delivery Easton Office Source: Lehigh and Northampton County Real Estate Tax Records, LVEDC Research, CoStar 6 COMMERCIAL REAL ESTATE REPORT Q4 2016
There is no doubt the industrial boom in the Lehigh Valley continues. We are one of the centers of the e-commerce storm on the East Coast and in the nation. This past year has been another big year for new development and the retention and expansion of existing businesses. Additionally, manufacturing is once again our number one business, making up 15 percent of our $37 billion GDP, which is why one of the themes of our new marketing campaign has been: Hey, world, we still make stuff here in the Lehigh Valley! - Don Cunningham, President & CEO, Lehigh Valley Economic Development Corporation ECONOMIC CONDITIONS EMPLOYMENT BY INDUSTRY 60K Industry Name Health Care & 50K Social Assistance Retail Trade 40K Manufacturing 30K Accommodation & Food Services 20K Educational Services 10K Administrative 0 Services Lehigh Valley Metro. Source: BLS & PA Center for Workforce Information & Analysis (CWIA) Transportation & Warehousing Construction Other Services Professional Services Wholesale Trade Finance & Insurance Management of Companies Public Administration Arts, Entertainment, & Recreation Information Real Estate Other The health care industry remains the Lehigh Valley s top employer, making up 17.67% of total employment within the region. The Lehigh Valley s unemployment rate is 5.7% as of November 2016, which follows largely the same pattern as the national rate. LABOR MARKET JOB GROWTH 3.0% UNEMPLOYMENT RATE 10.0% 9.0% 2.5% 8.0% 2.0% 7.0% 6.0% 1.5% 5.0% 1.0% 0.5% 0.0% Q1 2012 Q1 2013 Q1 2014 Q1 2015 Q1 2016 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 4.0% 3.0% 2.0% 1.0% 0.0% Lehigh Valley Pennsylvania United States Total nonfarm, Seasonally-adjusted figures. Source: JobsEQ. Data as of 2016 Q4. Source: JobsEQ. Data as of 2016 Q4. COMMERCIAL REAL ESTATE REPORT Q4 2016 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, grow and start 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. 02.17 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. Grow here. Start here. 2158 Avenue C, Suite 200 Bethlehem, PA 18017 Phone: 610-266-6775 Fax: 610-266-7623 www.lehighvalley.org