LEHIGH VALLEY COMMERCIAL REAL ESTATE REPORT OFFICE & INDUSTRIAL MARKETS

Transcription

1 LEHIGH VALLEY COMMERCIAL REAL ESTATE REPORT OFFICE & INDUSTRIAL MARKETS ISSUE # 011 Q3 2017

2 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 economy has once again grown to record-high levels. The regional gross domestic product (GDP) has reached an all-time high of $39.1 billion for 2016, a more than 4 percent increase over the previous year. The Lehigh Valley saw yearover-year growth in each individual subsector, reflecting the remarkable balance of the Lehigh Valley economy. Finance, insurance, and real estate is once again the region s largest sector in terms of GDP, having reached $8 billion, or roughly 20 percent of the total economy. Manufacturing saw significant growth as well, reaching $6.9 billion, while transportation and warehousing is the fastest-growing economic sector, reaching $1.9 billion, a 9.5 percent year-over-year increase. The Lehigh Valley economy is now larger than that of Wyoming ($38.5 billion) and Vermont ($31.5 billion), as well as 108 other countries in the world. If the Lehigh Valley were a country, it would be the 87th largest in the world in terms of economic output. The region continues to experience a shortage of smaller-footprint industrial manufacturing and flex space. The total available space for buildings in the between 3,700 and 7,400 square meters has changed little in the last five years. Only one building within that size range was completed in 2017, and none are currently under construction. The Lehigh Valley s industrial market has risen to 10.8 million square-meters, with 553,306 square meters currently under construction. The region s industrial vacancy rate is currently 4.9 percent. CBRE recently reported that the Lehigh Valley market ranks second globally in rent growth for industrial properties (10.1 percent), behind only the Seattle area (16.9 percent). The regional office market has also experienced growth, reaching a total inventory of 2.4 million square-meters, with 25,015 square-meters currently under construction, and 9,833 square-meters of year-to-date deliveries as of the third quarter of The Lehigh Valley s unemployment rate has remained steady at 5.2 percent as of August 2017, a rate that has remained virtually unchanged since the previous quarter. - Jarrett Witt, LVEDC Director of Business Development BROKER PERSPECTIVE Demand for new Class A industrial product in the Lehigh Valley market is very strong and we have noticed users are looking for immediate turnkey delivery of flexible industrial properties. To keep up with the demand, our firm currently has over 46,000 square meters of speculative buildings that will be delivered to the market in As the manufacturing, distribution and e-commerce industries continue to evolve, we believe our flexible speculative designs will translate into efficient and timely delivery of user fit-out requirements, which will support their efforts to accelerate growth opportunities in the Lehigh Valley and surrounding metropolitan markets. - Joe Correia, Executive Vice President, J.G. Petrucci Co., Inc. 2 COMMERCIAL REAL ESTATE REPORT Q3 2017

3 Lehigh Valley SNAPSHOT: INDUSTRIAL MARKET MARKET SUMMARY Of the 553,306 square meters under construction, none is for small-footprint manufacturing space Million Total Inventory (SM) 52K Net Absorption (SM) $0.52 Average Asking Rent (NNN) 553K Total Under Construction (SM) 4.9% Total Vacancy 214K 2017 Net Absorption (SM) 10.0% YOY Rent Growth 205K YTD Deliveries (SM) SUPPLY & DEMAND (SM) ASKING RATE (PER SM) $.52 $ K 369K Three buildings were delivered in Q3, only one smaller than 7,400 SM $.50 $.46 $ K 30K 139K 79K 23K 120K 52K Q Q Q Q Q Combined Space Q SQUARE METERS Q Deliveries Q Absorption Q Q Asking rate reflects growing demand for industrial properties. $ SMALL-FOOTPRINT INDUSTRIAL BUILDINGS (3,700-7,400 SM) Total available space has changed very little in 5 years Q Q Total Square Meters Q COMPLETED SINCE MARCH (7,350 SM) Q Q M Q UNDER CONSTRUCTION 0 Total Available Space: 102,000 SM 16 BUILDINGS 6.4% of the Total Inventory 67.4% of Available Space Average Age: 64 YEARS Vacancy AVAILABLE SPACE Oldest Building: 117 YEARS Includes Flex. Source: CoStar data set, LVEDC Research COMMERCIAL REAL ESTATE REPORT Q

4 Lehigh Valley SNAPSHOT: OFFICE MARKET MARKET SUMMARY The office vacancy rate fell from 7.7 percent in Q2 to 6.7 percent in Q Million Total Inventory (SM) 34.5K Net Absorption (SM) $1.42 Average Asking Rent (NNN) 25K Total Under Construction (SM) 6.7% Total Vacancy 68K 2017 Net Absorption (SM) 1.9% YOY Rent Growth 10K YTD Deliveries (SM) SUPPLY & DEMAND (SM) ASKING RENT RATE Absorption has outpaced deliveries in each quarter of K 34.5K $1.70 $1.69 $1.70 $1.71 $1.68 $1.40 $1.38 $1.45 $1.43 $ K 6.1K K 5.3K 4K Q Q Q Q Q REAL ESTATE CLASS A COMBINED Q SQUARE METERS -4.4K Q Deliveries Q Absorption Q Q Class A asking rent decreased, while overall $ office rent increased AMAZON HQ2 753K SM Current Office Space occupied by Amazon in Seattle 604K SM Total Class A Office Space in the Lehigh Valley Office space requirement in Phase 1 (2019) of Amazon s HQ2 project: 46.5K SM Office space delivered in the Lehigh Valley market in the past 12 months: 16K SM Class A office space currently vacant in the Lehigh Valley: 64K SM Approved for development: 78K SM* Currently under construction: 25K SM Asking Rates for Class A Office Space ($/SM) Manhattan $7.31 Washington, DC $5.55 Boston $5.49 Long Island $2.85 Northern NJ $2.82 Central NJ $2.58 Lehigh Valley $1.68 Sources: Amazon, CoStar ( data set), Colliers International Q Office Market Outlook, Lehigh Valley Planning Commission 2017 Build LV Report, LVEDC Research. *The only overlap in projects under construction and projects approved for development is City Center Allentown s Tower 6 (12,630 SM). 4 COMMERCIAL REAL ESTATE REPORT Q3 2017

5 BROKER PERSPECTIVE The Lehigh Valley has seen a steady and sometimes significant economic growth pattern over the last seven years. While the e-commerce and distribution markets have received the lion s share of publicity and job creation, the office market has likewise seen a steady, albeit slower, upward trend. The downtown Allentown office component has led the way in new product and provided significant activity while the suburban and surrounding office product works to fill up its vacancies left by the burgeoning city market. This reverses the trend in the Valley seen over the prior 40 years of office location by major employers and we expect the users to steadily backfill the surrounding regional space. - Del Markward President & CEO, Markward Group COMMERCIAL REAL ESTATE REPORT Q

6 Q COMMERCIAL REAL ESTATE TRANSACTIONS NOTABLE SALES PROPERTY BUYER SELLER 555 Union Boulevard Executive Education Academy Charter School SALE PRICE MUNICIPALITY CLASS Samuel Brill $32,500,000 Allentown Office 30 N. 4th St. City of Easton 30 North Fourth LP $7,728,105 Easton Office 7350 William Ave. Cabot Properties High Street Realty Co., LLC $7,600, Burgess Place J.G. Petrucci Co. Guardian Life Insurance $6,750,000 Upper Macungie Twp. (Northampton) Office th Ave. A.L. Bazzini Co. Eighth Avenue Professional Associates $6,250,000 Bethlehem Office 272 Brodhead Rd. Centurion Eagle LLC Michael M. Dunn $4,400,600 (Northampton) 7230 Beth Bath Pike L&M Fabrication and Machine MC Ironworks $4,125,000 East Allen Twp. 966 Postal Road Cabot Properties High Street Realty Co., LLC $3,675, Postal Road Cabot Properties High Street Realty Co., LLC $3,625, William Ave. Cabot Properties High Street Realty Co., LLC $3,600, Postal Road Cabot Properties High Street Realty Co., LLC $2,800,000 (Lehigh) (Lehigh) Upper Macungie Twp. (Lehigh) 101 S. 7th St. IBEW Local 375 S&S Singh Partners $2,150,000 Allentown Office 316 Broadway Blue Ridge Business Center Stephen E. and Patricia L. Howanitz $1,399,000 Wind Gap 2020 Downyflake Lane Affordable Dental Realty LLC David and Lisa Capece $1,350,000 Allentown Office NOTABLE LEASES PROPERTY SM LANDLORD REPRESENTATIVE TENANT MUNICIPALITY CLASS 1611 Van Buren Road 58,510 CBRE XPO Logistics Palmer Twp. 30 N. 4th St.. 6,070 ALT Realty Easton Arts Academy Elementary Charter School Easton Office 1139 Lehigh Ave. 3,795 NAI Summit P&B Partitions Whitehall 268 Brodhead Road 3,133 Paranee Property Management (Northampton) Flex 600 Hamilton St. 1,100 City Center Talen Energy Allentown Office 2451 Baglyos Circle 836 NAI Summit Bethlehem Twp. Flex Source: Lehigh and Northampton County Real Estate Tax Records, LVEDC Research, CoStar 6 COMMERCIAL REAL ESTATE REPORT Q3 2017

7 With a GDP of $39.1 billion, the Lehigh Valley is now the 65th largest economy in the United States, which is a jump of eight places from 73rd last year. Our region has more annual economic output than the states of Vermont and Wyoming, as well as 108 other countries in the world. In fact, if the Lehigh Valley were a country itself, it would have the 87th largest economy in the world. - Don Cunningham, President & CEO, Lehigh Valley Economic Development Corporation Lehigh Valley ECONOMIC CONDITIONS LEHIGH VALLEY GDP BY INDUSTRY SECTOR Finance, Insurance & Real Estate Manufacturing Education, Health Care, & Social Assistance $5.33 Professional & Business Services Retail Trade Information Transportation & Warehousing Arts, Entertainment, Recreation, Accommodation, & Food Services $1.57 $1.49 $1.90 $1.87 $1.87 $1.71 $2.30 $2.22 $0 $2 $4 $6 $8 $ in Billions $5.09 $5.30 $5.08 $6.89 $6.72 $7.54 $7.98 UNEMPLOYMENT RATE 9.0% 8.0% 7.0% 6.0% 5.0% Lehigh Valley ranked 65th in the country among metropolitan areas for GDP in We are up 8 spots in the ranking from THE LEHIGH VALLEY HAS GREATER GDP THAN THE STATES OF Vermont & Wyoming & THE FOLLOWING CITIES Worcester, MA Dayton, OH Fresno, CA Greensboro, NC Knoxville, TN 4.0% Aug-12 Aug-13 Aug-14 Aug-15 Aug-16 Aug-17 Lehigh Valley Pennsylvania United States 5.2% 5.1% 4.5% Total nonfarm, Seasonally-adjusted figures. Sources: Bureau of Economic Analysis, JobsEQ. Data as of August COMMERCIAL REAL ESTATE REPORT Q

8 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 Lehigh Valley Economic Development Corporation. All Rights Reserved 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 Avenue C, Suite 200 Bethlehem, PA Phone: Fax: