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.