www.lehighvalley.org

Q2 2017

LEHIGH VALLEY COMMERCIAL REAL ESTATE REPORT

ISSUE # 010

OFFICE & INDUSTRIAL MARKETS

2 COMMERCIAL REAL ESTATE REPORT • Q2 2017

CURRENT CONDITIONS

The Lehigh Valley industrial market continues to grow, reaching a total inventory of 115.5 million square-feet as of the second quarter of 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.

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 5.3 million square-feet 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 15.4 million square-feet. As we push into the third quarter, we are seeing leasing rates continue to push to historical highs.”- Sean Bleiler, Senior Vice President, CBRE

The region has seen 1.8 million square-feet in deliveries so far this year, and 5 million square-feet are currently under construction. The region’s overall industrial vacancy rates are 5 percent, and for properties specifically between 40,000 and 80,000 square-feet, 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 25.8 million square-feet, with 57,565 square-feet in year-to-date deliveries as of the second quarter of 2017. Office inventory in the Lehigh Valley has grown by an average of more than 300,000 square-feet annually over the last three years.

A total of 364,538 square-feet is currently under construction.

The region’s office vacancy rate is at 7.7 percent. Office 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 862,000 square-feet 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

*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.

3COMMERCIAL REAL ESTATE REPORT • Q2 2017

Lehigh Valley

SNAPSHOT: INDUSTRIAL MARKET

115.5 MillionTotal Inventory (SF)

160.9K Net Absorption (SF)

$5.43Average Asking Rent (NNN)

5 MillionTotal Under Construction (SF)

5.0%Total Vacancy

1.6 Million2017 Net Absorption (SF)

10.1%YOY Rent Growth

1.8 MillionYTD Deliveries (SF)

Includes Flex. Source: CoStar (6-30-17 data set), LVEDC Research

MARKET SUMMARYE-commerce gets the headlines, but the need for smaller industrial properties is significant.

INDUSTRIAL PROPERTIES (40,000-80,000 SF)

ASKING RATE (PER SF)

New building deliveries since 2012

Vacancy Rate

201720162015201420132012

6.1%

5.6%5.3%

4.0% 3.9%3.6%

Q1 2017Q4 2016Q3 2016Q2 2016 Q2 2017

Combined Industrial Space

$4.93$4.99

$5.03

$5.35

$5.43

2

Asking rate reflects growing demand for industrial properties.

$

0 Net change in # of properties since 2012

Average age of current inventory in years 4913.4MM

DeliveriesSQUARE FEET Absorption

Q2 2017Q1 2017Q4 2016Q3 2016Q2 2016

440K

1,680K

3,964K

1,438K

0

5,262K

320K

1,476K

161K272K

SUPPLY & DEMAND (SF)

Supply grew by 1,156,000 SF, while demand decreased by 1,217,000 SF in Q2.

Square-feet of industrial properties of this size; unchanged from 2012 to 2017.

4 COMMERCIAL REAL ESTATE REPORT • Q2 2017

Lehigh Valley

SNAPSHOT: OFFICE MARKET

25.8 MillionTotal Inventory (SF)

276.8K Net Absorption (SF)

$15.29 Average Asking Rent (NNN)

364,538Total Under Construction (SF)

7.7%Total Vacancy

370.9K2017 Net Absorption (SF)

1.5%YOY Rent Growth

57,565YTD Deliveries (SF)

Includes Flex. Source: CoStar (6-30-17 data set), LVEDC Research

MARKET SUMMARYOffice inventory has grown by an average of more than 300,000 SF over the last three years.

DeliveriesSQUARE FEET Absorption

Q2 2017Q1 2017Q4 2016Q3 2016Q2 2016

403K

290K

0 0

66K 94K58K45K

(47K)

277K

SUPPLY & DEMAND (SF)

Supply grew by 57,565 SF, and demand increased by 182,747 SF in Q2.

RENT & VACANCY RATE

Q1 2017Q4 2016Q3 2016Q2 2016 Q2 2017

CLASS A Vacancy RateRent

15.2%

14.2%

15.3%15.5%

14.9%$18.24

$18.30

$18.28

$18.36

$18.17

Class A asking rent increasing as vacancy rate drops.

$FOR

RENT

OFFICE PROPERTIES

Office inventory (SF) increased by 3.3% in the last 3 years.

862,000 SF of Class A office space has been added since 2014.

97% of region’s Class B and C office space is over 10 years old.

CLASS A CLASS B CLASS C

12,373,763 SF6,441,829 SF 6,944,993 SF

More than 10 years old Less than 10 years old

85%

97%3%

98%2%

15%

5COMMERCIAL 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, on-site 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

6 COMMERCIAL REAL ESTATE REPORT • Q2 2017

Source: Lehigh and Northampton County Real Estate Tax Records, LVEDC Research, CoStar

Q2 2017 COMMERCIAL REAL ESTATE TRANSACTIONS

PROPERTY SFLANDLORD

REPRESENTATIVE TENANT MUNICIPALITY CLASS

West Hills Business Center 413,750 CBRE Weisenberg Twp. Industrial

400 Boulder Drive 363,000 Liberty Property Trust Upper Macungie Twp. Industrial

515 Hamilton St. (3 City Center) 81,951 City Center Lehigh Valley Health Network Allentown Office

7144 Daniels Drive 70,000 Warehouse Specialists Upper Macungie Twp. Industrial

6390 Hedgewood Drive 39,200 Liberty Property Trust GHG Logistics Upper Macungie Twp. Industrial

7660 Imperial Way 26,040 SVN Imperial Realty Upper Macungie Twp. Office

600 Hamilton St. (Tower 6) 22,000 City Center Allentown Office

944 Marcon Blvd. 20,820 PennCap Properties Hanover Twp. (Lehigh) Industrial

3300 Lehigh St. 20,000 South Mall Full Circle Training Allentown Commercial

3601 Sullivan Trail 17,000 Margaret Baurkot Cross Fit Advanced Forks Twp. Industrial

2040 Avenue C 17,000 NAI Summit Bethlehem Office

964 Postal Road 12,987 Cushman & Wakefield Stiltz Lifts USA Hanover Twp. (Lehigh) Industrial

600 Hamilton St. (Tower 6) 11,000 City Center CAPTRUST Allentown Office

NOTABLE LEASES

PROPERTY BUYER SELLERSALEPRICE MUNICIPALITY CLASS

910 Nestle Way NFI Industries LNR Partners $41,500,000 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. Office

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 Hanover Twp. (Northampton) Office

236 Brodhead Road 236 Brodhead Road LLC BB&T $3,050,000 Hanover Twp. (Northampton) Office

632 Grammes Lane Jenstar Properties Inc. Plantique $2,850,000 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. Office

2132 S. 12th St. 2132 South 12th Street LLC Lehigh Valley Hospital $1,250,000 Allentown Office

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. Office

NOTABLE SALES

7COMMERCIAL REAL ESTATE REPORT • Q2 2017

Lehigh Valley Pennsylvania United States

June-12 June-13 June-14 June-15 June-16 June-174.0%4.5%5.0%5.5%6.0%6.5%7.0%7.5%8.0%8.5%9.0%

5.2%

4.3%

5.0%

Total nonfarm, Seasonally-adjusted figures. Source: JobsEQ®. Data as of June 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

UNEMPLOYMENT RATE

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 MANUFACTURING891 Jobs • 10.2%

FASTEST GROWINGEMPLOYMENT SECTORS 2012-2017

TOP INDUSTRIAL SECTORS (GDP)

Lehigh Valley

ECONOMIC CONDITIONS

$5.6B

$5.5B

$5.0B

$4.9B

MANUFACTURING

FINANCE & REAL ESTATE

EDUCATION & HEALTH CARE

PROFESSIONAL& BUSINESS SERVICES

Total GDP = $36.97 Billion

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. 08.17

LVEDC

Com

mercial R

eal Estate Report designed by M

ichelle Chrin.