www.lehighvalley.org

Q3 2016

LEHIGH VALLEY COMMERCIAL REAL ESTATE REPORT

ISSUE # 007

OFFICE & INDUSTRIAL MARKETS

2 COMMERCIAL REAL ESTATE REPORT • Q3 2016

CURRENT CONDITIONS

We received good news for the Lehigh Valley economy this quarter, as the regional gross domestic product (GDP) has risen to a record-high $36.97 billion.

That marks a 2.2 percent increase in 2015 (the most recent year data is available) compared to the previous year, and the regional GDP has increased by 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).

The Lehigh Valley’s office vacancy rate for all combined real estate classes is currently 8.8 percent, which is lower than the national average of 9.9 percent. The regional vacancy rate has dropped by roughly a half-percentage point each year since the third quarter of 2013, when it was 10.4 percent. Rents have remained relatively stable over that time, coming in at $20.37 this quarter, compared to $19.80 exactly one year ago.

The industrial real estate market remains strong in the Lehigh Valley, with an aggregate vacancy rate of 4.9 percent. That compares favorably with the national average of 5.6 percent. The regional vacancy rate is a drop compared to 6.5 percent in the second quarter of 2016, but around the same as the 4.5 percent regional vacancy rate from the third quarter of 2013. Larger buildings in particular continue to have low vacancy rates, coming in at 3.7 percent for 500,000 square-feet or above. The most significant movement in the industry market was Amazon.com’s 1.1 million square-foot lease of warehouse space in 33 Logistics Park in Palmer Township.

This quarter saw 1.6 million square feet of net absorption in the industrial market, with industrial space coming off the market quickly upon delivery. Much of the current construction is speculative – a sign of the market’s strength – and low vacancy rates have created a rise in preleasing commitments. According to Lee & Associates, only 43 percent of the total square footage expected to deliver in the fourth quarter of 2016 remains available for lease.

- 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 “In 2016, we have seen the office leasing market continue to define itself. There is good activity of small- to medium- size tenants making moves to better fit their needs. As the market has indications of being somewhat over-supplied, the characteristics of tenants reflect that in delayed timeframes in committing to leasing space. Tenants in the 15,000 square-foot range and above are of limited supply. The owners of buildings with available space are hopeful that the economy will produce more growth related demands for additional space in the near future.”- Doug Frederick, Owner, The Frederick Group

3COMMERCIAL REAL ESTATE REPORT • Q3 2016

VACANCY RATE (PERCENT)

INDUSTRIAL MARKET

108 MillionTotal Inventory (SF)

1.6 MillionNet Absorption (SF)

$4.97Average Asking Rent (NNN)

10.8 MillionTotal Under Construction (SF)

4.8%Total Vacancy

2.1 MillionYTD Net Absorption (SF)

2.7%YOY Rent Growth

1.6 MillionYTD Deliveries (SF)

Includes Flex. Source: CoStar(10/3/16 data set), LVEDC Research

MARKET SUMMARY

SUPPLY & DEMAND2015 Q3 2015 Q4 2016 Q1 2016 Q2 2016 Q3

SF

Deliveries (supply) Absorption (demand)

2000K

1500K

1000K

500K

0K

834K932K

1,996K

994K

1,348K

63K261K

455K

1,627K

0K

ASKING RATE (PER SF)

Real Estate Class

Vaca

ncy

Perc

ent

500K 100K to 499K 20K to 99K Combined

2015 Q3 2015 Q4 2016 Q1 2016 Q2 2016 Q32015 Q3 2015 Q4 2016 Q1 2016 Q2 2016 Q32015 Q3 2015 Q4 2016 Q1 2016 Q2 2016 Q32015 Q3 2015 Q4 2016 Q1 2016 Q2 2016 Q3

10%

8%

6%

4%

0%

2%

$5.50

$5.25

$5.00

$4.75

$4.50

$4.25

$4.64

$4.35

$4.73

$4.28

$4.76

$4.46

$5.52

$4.26

$5.53

$4.59 $4.59$4.59

$4.85

$5.54

$4.80$4.69

$5.29$5.30

$4.23

$4.67

3.7%

5.5%

2.3%0.7%

4.1%

9.0% 9.0%

4.0% 4.2%

6.9%

4.9%

7.5%

4.8%

3.4%

5.3%

4.5%

6.7%

9.3%

5.4%6.5%

4 COMMERCIAL REAL ESTATE REPORT • Q3 2016

VACANCY RATE (PERCENT)

OFFICE MARKET

25,139,639Total Inventory (SF)

47,676Net Absorption (SF)

$20.37Average Asking Rent

350,265Total Under Construction (SF)

8.80%Total Vacancy

260,811YTD Net Absorption (SF)

2.8 %YOY Rent Growth

0YTD Deliveries (SF)

Source: CoStar (10/3/16 data set), LVEDC Research

MARKET SUMMARY

SUPPLY & DEMAND2015 Q3 2015 Q4 2016 Q1 2016 Q2 2016 Q3

SF

Deliveries (supply) Absorption (demand)

-40K

0K

40K

80K

120K

-33K

0K

57K

0K

102K

0K

112K

0K

48K

0K

ASKING RATE (PER SF)

Real Estate Class

Vaca

ncy

Perc

ent

A B C Combined

20%

15%

10%

5%

0%2015 Q3 2015 Q4 2016 Q1 2016 Q2 2016 Q3 2015 Q3 2015 Q4 2016 Q1 2016 Q2 2016 Q3

9.9%

17.7%17.5%

9.4%

20.7%

7.6%7.7%

10.4%

16.4%

5.6%

8.2%

4.5%

20.2%

9.0%

5.7%5.7% 7.4%

4.8%

8.8%7.3%

$16

$14

$18

$20

$22

$24

$26 $25.99

$20.37$20.37

$26.04$25.92

$19.80$18.53

$18.12 $18.75

$26.47$25.52

$15.84 $15.83

$20.61

$18.84 $18.87

$20.66

$16.22 $15.71$16.17

5COMMERCIAL REAL ESTATE REPORT • Q3 2016

BROKER PERSPECTIVE “Office consumers are looking for a new experience consisting of shared office facilities, collaborative environments, technology services, vibrant environments and a sense of community. The Lehigh Valley is seeing success with collaborative work environments through new facilities in the Trifecta Building and Velocity in Allentown and traditional shared office spaces through Office Quarters in Upper Macungie, Madison Executive Center in Bethlehem, and Regus in Center Valley. The environments match small businesses, start-ups and entrepreneurs in energetic environments.”

- Cindy McDonnell Feinberg, Feinberg Real Estate Advisors

Photo Credit: Halkin | Mason Photography Architect: granum a/i

6 COMMERCIAL REAL ESTATE REPORT • Q3 2016

PROPERTY BUYER SALE PRICE FIRM MUNICIPALITY CLASS

528 N New St Dodson Building Llc $4,272,000 Bethlehem Office

54 S Commerce Way 54 SCW, LLC $4,050,000 JLL Hanover Township (NC) Flex

2151 Emrick Blvd $3,550,000 The Frederick Group Bethlehem Township Office

2650 Howertown Rd Yurban Plaza Llc $1,900,000 Allen Township Industrial

322 S 17th St $1,711,000 SVN Imperial Realty Allentown Office

623 W Union Blvd LFC Realty LLC $1,650,000 The Keyes Company Bethlehem Office

520 E Broad St Pe Saint Lukes Hosp Of Bethlehem $1,636,000 Bethlehem Office

5583 Roosevelt St Whg Llc $1,250,000 PF Weiss Realty, LLC Whitehall Township Industrial

268 Brodhead Rd Rb Property Holdings LLC $1,225,000 Newmark Grubb Knight Franky Hanover Township (NC) Flex

6475 Ruch Rd Tirus $1,175,000 NAI Summit East Allen Township Industrial

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

Q3 2016 COMMERCIAL REAL ESTATE TRANSACTIONS

SALES OVER $1M

PROPERTY SF FIRM MUNICIPALITY CLASS

33 Logistics Park 1610 1610 Van Buren Rd 1,106,442 CBRE/Duke Realty

Corporation Palmer Township Industrial

5210 Jaindl Blvd 132,000 CBRE Hanover Township (NC) Industrial

200 Cascade Dr 108,000 Colliers International Hanover Township (LC) Industrial

Bethlehem Crossings I 2625 Brodhead Rd 104,000 JLL Bethlehem Township Industrial

Lehigh Valley Business 904 Marcon Blvd 19,200 NAI Summit Hanover Township (LC) Industrial

183 Mikron Rd 12,100 NAI Summit Lower Nazareth Township Industrial

Hamilton Business Center 1101 W Hamilton St 11,750 1101 HBC LLC Allentown Office

1550 Pond Rd 11,315 NAI Summit South Whitehall Township Office

1510 Valley Center Pky 10,300 PennCap Properties Portfolio, LP Hanover Township (NC) Flex

LEASES OVER 10K SF

7COMMERCIAL REAL ESTATE REPORT • Q3 2016

Q3 2016 COMMERCIAL REAL ESTATE TRANSACTIONS

ECONOMIC CONDITIONS

Industry NameEducational Services

Financial Activities

Health Care & Social Asistance

Information

Leisure & Hospitality

Manufacturing

Mining, Logging, & Construction

Other Services

Professional & Business Services

Retail Trade

Transportation & Utilities

Wholesale Trade

3.12%

1.89%

4.18%4.24%

7.67% 4.58%

18.69%

12.81%

11.32%

14.79%

12.31%

4.39%

The health care industry remains the Lehigh Valley’s top employer, making up 18.69% of total employment within the region.

The Lehigh Valley’s unemployment rate is 5.8% as of October 2016, up slightly from 5% in October 2015. The the region’s unemployment rate follows largely the same pattern as the national rate.

EMPLOYMENT BY INDUSTRY

Lehigh Valley Metro Pennsylvania United States

1/15 3/15 5/15 7/15 9/15 11/15 1/16 3/16 5/16 7/16 9/16

4.5%

5.0%

5.5%

4.9%

5.7%5.8%

5.7%

5.3%

5.6%

8/1/16

2010 2011 2012 2013 2014 2015 2016

-1K

0K

1K

2K

Total nonfarm, Seasonally-adjusted figures. Source: BLS & PA Center for Workforce Information & Analysis (CWIA)

Source: BLS & PA Center for Workforce Information & Analysis (CWIA)

LABOR MARKET JOB GROWTH UNEMPLOYMENT RATE

BROKER PERSPECTIVE “The Lehigh Valley industrial market is the second-largest in Eastern Pennsylvania, and is easily one of the healthiest markets in the United States. Given its advantageous geographical position relative to major MSAs in the North Eastern U.S., its strong labor pools, and its logistical proximity to interstates 81 and 78, the Lehigh Valley will continue to attract new tenants, institutional investment and development opportunities through Q4 and well into 2017.”

- Brian Knowles, Principal, Lee & Associates of Eastern Pennsylvania

Lehigh Valley MetroSource: BLS & PA Center for Workforce Information & Analysis (CWIA)

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,grow and start 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. Grow here. Start here.

©2016 Lehigh Valley Econom

ic Developm

ent Corporation. All R

ights Reserved. 10.16

LVEDC

Com

mercial R

eal Estate Report designed by M

ichelle Chrin.