COMMERCIAL REAL ESTATE REPORT ISSUE #029
Q1 2022
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’s commercial real estate market delivered encouraging signs of recovery in the first quarter of 2022 amid uncertainty caused by the pandemic and global supply chain issues.
The industrial market, among the nation’s busiest, expanded even as vacancy rates remained low and rents ticked upward. Inventory grew by a million square feet, totaling 141.2 million square feet. Another 5.4 million square feet was under construction. Nearly a fifth of the construction is for nationally recognized logistics provider Unis. Its lease is among the largest since the pandemic began, with only Geodis and Nike signing for larger spaces since 2020.
Underscoring the continued strength of the industrial real estate market, global logistics operator Realterm purchased a fully-leased facility in Bethlehem for a sum that CoStar puts at $96.7 million – the largest sale of in the first quarter. While logistics gets much of the attention, most of the new leases were for under 100,000 square feet as the Lehigh Valley landed manufacturers that promise to bring hundreds of jobs: • Australian-owned Easy Signs, which makes high-quality printed signage, is opening its first U.S. manufacturing operation in Upper Macungie Township, creating 130 new jobs. • Spot & Tango, a pet health and wellness company, will operate its first manufacturing facility, bringing 96 new jobs to Upper Macungie. • Olympus Corporation’s new subsidiary Evident, which makes products such as videoscopes and X-ray analyzers, will operate a microscopy distribution and service center at Lehigh Valley Industrial Park VII in Bethlehem.
While the future of remote work and COVID-19 variants continued to cause uncertainty in the office market, two companies made significant commitments in the Lehigh Valley: • Air Products, a Fortune 500 company, began moving into its new 625,000-square-foot corporate headquarters in Lower and Upper Macungie townships. • FLSmidth, which supplies engineering, equipment and service solutions to the mining and cement industries, sold its offices in Bethlehem and subleased space at Patriot American Park, the former Agere headquarters adjacent to Route 22 and Lehigh Valley International Airport. The economic conditions are improving as the Lehigh Valley continued to drive Pennsylvania’s jobs recovery. At the end of March, the Lehigh Valley metro region regained 99% of the jobs lost since April 2020, trending above state and U.S. levels. The Lehigh Valley grew amid a historic population shift away from urban centers in a time when social distancing was key at slowing COVID-19’s spread and the rise of remote work made employees more mobile. As nearby cities Philadelphia and New York City lost population, the Lehigh Valley experienced a notable net gain of people moving domestically between July 2020 and June 2021, pushing the population to nearly 690,000, according to U.S. Census Bureau data.
“Realterm’s new Lehigh Valley facility is advantageously located in one of the fastest growing industrial markets in the country due to the region’s transportation infrastructure, low operating costs, parcel/freight hubs, abundant labor, and unmatched regional connectivity. This asset is an excellent example of our continued strategy of acquiring the most functional industrial properties across the country.” Stephen Panos, Senior Vice President and Fund Manager, Realterm
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COMMERCIAL REAL ESTATE REPORT • Q1 2022
Lehigh Valley
SNAPSHOT: INDUSTRIAL SPACE MARKET SUMMARY
The Lehigh Valley’s industrial and flex footprint has grown by more than 11.5 million square feet since the first quarter of 2020.
141.2 M
582.6K
Total Space (SF)
$7.86
Q1 Net Absorption (SF)
4.7%
582.6K
Total Vacancy
2022 Net Absorption (SF)
Average Asking Rent (NNN)
+18.9%
Rent Change Since Q1 2021
INDUSTRIAL FOOTPRINTS Asking Rent Q1 2021 Q2 2021 Q3 2021 Q4 2021 Q1 2022
> 300K SF
20-80k
> 300K SF
$7.60
$6.25
2.6%
4.1%
$8.45
$6.00
3.1%
3.2%
$7.48
$6.00
3%
3.4%
$7.88
$6.00
3.3%
5.2%
$7.19
$6.40
3%
1.4 M
2022 Deliveries (SF)
The Lehigh Valley offers more affordable space for Research and Development than nearby markets in New Jersey and suburban Philadelphia
Vacancy Rate
20-80k
5.4 M
Total Under Construction (SF)
4.8%
The median size for manufacturing prospects in March was 50,000 square feet. The data shows asking rent for industrial property of smaller footprints command more per square foot and have lower vacancy rates in the Lehigh Valley.
Lehigh Valley, PA
$7.36
Northeastern Pennsylvania
$8.21
I-287 Corridor in New Jersey
$10.83
Northern New Jersey
$12.02
Bucks County, PA
$12.07
Montgomery County, PA
$17.36
Source: Newmark
New Olympus spinoff Evident Corporation is opening a new microscopy distribution and service center in Lehigh Valley Industrial Park VII in Bethlehem because of its central Northeast location, well-developed transportation structure, proximity to the Lehigh Valley International Airport, and attractiveness to its workforce.
Sources: CoStar, LVEDC Research, Newmark
COMMERCIAL REAL ESTATE REPORT • Q1 2022
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Lehigh Valley
SNAPSHOT: OFFICE SPACE MARKET SUMMARY
The market summary includes total office space, which includes owner-occupied and medical offices.
28M
51K
Total Space (SF)
Q1 Net Absorption (SF)
9.1%
51K
Total Vacancy
2022 Net Absorption (SF)
Rentable Office Space Excluding Owner-Occupied and Medical
$15.82
Average Asking Rent (NNN)
-1.2%
Rent Change Since Q1 2021
16.9M
Total Space (SF)
138.3K*
Total Under Construction (SF)
625K**
YTD Deliveries (SF)
$16.09
Average Asking Rent (NNN)
“Major local employers continue to encourage employees to return to the office, and many have already begun implementing their plans to do so. For those tenants in the market, there is a flight to quality with most now considering longer-term deals. That is a trend we’re seeing throughout the region: as the office market normalizes, higher quality spaces are seeing more lease-up and vacancy stabilization.” Philip M. Schenkel, Executive Vice President – Associate Director, Jones Lang LaSalle
VACANCY RATE (PER SF) 11.5%
11.4%
11.4%
11.4%
ASKING RATE 11.3%
11.3%
11.0% 10.5% 10.0% 9.5% 9.2% 9.0% Q1 2021 Total Office
9.40% 9.5%
Q2 2021
9.3%
9.3%
Q3 2021
Q4 2021
9.1%
Q1 2022
Rentable
Vacancy rates for office space have remained steady over the last four quarters.
Class A Office Space Lehigh Valley, PA
$23.86
King of Prussia, PA
$28.84
Essex County, NJ
$33.69
Conshohocken, PA
$40.10
University City, Philadelphia
$44.27
Madison/Fifth Avenue, NYC
$103.96
The Lehigh Valley offers more affordable rent for Class A Office space than nearby markets.
Sources: CoStar, LVEDC Research, Cushman & Wakefield *Includes an office building at The Waterfront project in Allentown. **Air Products has completed a new corporate campus in Upper and Lower Macungie townships.
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COMMERCIAL REAL ESTATE REPORT • Q1 2022
FLSmidth, a leading supplier of engineering, equipment and service solutions to customers in the mining and cement industries, signed a sublease in the first quarter for office space at Patriot American Park, once the global headquarters for Agere Systems. FLSmidth employs 200 in the Lehigh Valley. “We’re excited to move into our new offices. They offer a much more modern space with a lower carbon footprint, which is in keeping with our sustainability ambitions. Crucially, we’re staying local to our customers, and we look forward to welcoming them into the new offices in due course.” Rafael Martinez, Vice President of Cement, FLSmidth
PROSPECT PIPELINE
The Lehigh Valley Economic Development Corporation had an active pipeline of 47 companies considering a move to or expansion in the Lehigh Valley as of the end of Q1 2022.
Manufacturing Prospects
35
Jobs in the Pipeline
4,191
Potential Capital Investment
1.3B
Of the 27 manufacturing prospects that indicated a size requirement: Total SF Required
6.6M
Median SF Requested
50,000
Average SF Requested
243,259
Prospects seeking 500K SF+ Prospects seeking <150K
4 19
Source: LVEDC Research. *Not all prospects identified square footage requirements and job estimates.
COMMERCIAL REAL ESTATE REPORT • Q1 2022
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Q1 2022 COMMERCIAL REAL ESTATE TRANSACTIONS NOTABLE SALES
SALE PRICE
MUNICIPALITY
CLASS
SDC Bethlehem Property LLC
$96,700,000
Bethlehem
Industrial
Riverside at Whitehall Holding LLC
1788/Riverside Business Center LLC
$32,550,000
Whitehall
Industrial
2040 Avenue C
LV Academy Regional Charter School
Fuller Company
$15,376,490
Bethlehem
Office
2302-2310 26th St SW
Triple Net Investments XCIV LLC
MKD Real Estate LLC
$4,100,000
Allentown
Industrial
15 McFadden Rd
St James Re Holdings LLC
Kasapov LLC
$2,500,000
Palmer Township
Industrial
1403 Jacobsburg Rd
Colton Wind Gap Properties LLC
Triple Net Investments XXIV LP
$3,350,000
Bushkill Township
Industrial
1055 Win Dr
Java SD Steel LLC
Lawrence Bruce J
$1,320,000
Bethlehem
Industrial
732 N 16th St
RST2 Holdings LLC
Z & M Realty Management LLC
$1,300,000
Allentown
Industrial
4988 East Valley Dr
H & Z Holding LLC
GMT Transport INC
$1,025,000
Lehigh Township
Industrial
2141 Downyflake Ln
City Center Investment Corporation
People First Federal Credit Union
$1,000,000
Allentown
Office
PROPERTY
BUYER
SELLER
1245 Easton Rd
Rlif Easton Rd Spe LLC
1139 Lehigh Ave
NOTABLE LEASES SF
LANDLORD REPRESENTATIVE
TENANT
MUNICIPALITY
CLASS
175 Cesanek Rd
953,336
CBRE
Unis
Allen Township
Industrial
7132 Daniels Dr
292,092
Cushman & Wakefield
Five Star Apparel
Upper Macungie Township
Industrial
2900 Brodhead Rd
267,120
Lee & Associates
Bethlehem Township
Industrial
3943 Easton-Nazareth Hwy
256,474
JLL
Lower Nazareth Township
Industrial
1520 Van Buren Rd
142,569
CBRE
Palmer Township
Industrial
130 Commerce Ln
95,382
CBRE
Tatamy
Industrial
2109 City Line Rd
72,260
Veyron & Co. LLC
Dr. Pepper Snapple Group
Bethlehem
Industrial
7346 Penn Dr
72,000
Gelcor Real Estate
Easy Signs
Upper Macungie Township
Industrial
4741 Chapmans Rd
67,750
Lee & Associates
South Whitehall Township
Industrial
7520 Morris Ct
66,700
Colliers International
Upper Macungie Township
Industrial
1150 Center St
54,000
NAI Summit
Williams Township
Industrial
240 Emery St
39,950
CBRE
Evident Corporation
Bethlehem
Flex
1110 American Parkway NE
16,708
JLL
FLSmidth
Hanover Township, Lehigh
Office
3101 Emrick Blvd
15,945
CBRE
Bethlehem Township
Office
1240 N. Sherman St
13,600
SVN
Allentown
Industrial
PROPERTY
Source: CoStar
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COMMERCIAL REAL ESTATE REPORT • Q1 2022
Spot & Tango
“The Lehigh Valley is becoming more vibrant, more diverse, and growing in population and economic output. Since 2010, the Lehigh Valley’s population rose by more than 6% to about 690,000 people making it one of Pennsylvania’s fastest growing regions and in the top 25 percent of growing regions in the United States. More importantly, the population between the ages 18 to 34 years old – who now are the largest generation in our workforce – grew by 10.7% during that time.” Don Cunningham President & CEO, Lehigh Valley Economic Development Corporation (LVEDC)
MARKET INDICATORS LEHIGH VALLEY POPULATION TRENDS 2012-2021
Births
70,326
International Migration
Domestic Migration
Deaths
65,279
-946
23,034
Population Change
5.7%
MIGRATION CHANGES
Like 58% of U.S. counties, the Lehigh Valley grew in population during the pandemic mainly because of net domestic migration as people moved from the nation’s largest metro regions. International migration had been the historic driver of growth in the region.
7,585
8,000 6,000
6,803
4,000 2,000
1,749
0
730
-2,000 -4,000
2012
2013
2014
2015
2016
2017
NET INTERNATIONAL MIGRATION BIRTHS
2018
2019
2020
2021
NET DOMESTIC MIGRATION DEATHS
Source: U.S. Census, Population Estimates Program, for Lehigh and Northampton counties
TRACKING THE LEHIGH VALLEY’S RECOVERY LABOR FORCE
The economic downturn induced by the pandemic was particularly affected by the number of people who dropped out of the workforce. Data shows the number of people employed and seeking employment reached pre-pandemic levels in March, though the labor force recovery may not be equal across all industry sectors. March 2022 April 2020
February 2020
PERCENTAGE OF JOBS RECOVERED SINCE APRIL 2020 The Lehigh Valley’s jobs recovery is trending above Pennylvania’s and the nation’s.
Employed
Unemployed
Lehigh Valley
99%
346,200
15,900
Pennsylvania
83%
United States
93%
286,100 342,300
56,800 16,400
Sources: PA Department of Industry & Labor (Seasonally-Adjusted Data for Lehigh and Northampton counties.), U.S. Bureau of Labor Statistics for the Lehigh Valley metro region (Lehigh, Northampton, Carbon & Warren counties)
COMMERCIAL REAL ESTATE REPORT • Q1 2022
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©2022 Lehigh Valley Economic Development Corporation. All Rights Reserved. 05.2022 LVEDC Commercial Real Estate Report designed by Michelle Chrin.
Our Mission
The mission of the Lehigh Valley Economic Development Corporation is to market the economic assets of the Lehigh Valley and to create partnerships to support the recruitment, growth and retention of employers and the creation of jobs for people of all skills and educations.
Our Vision
Our vision is of a diverse Lehigh Valley economy that provides economic growth and opportunity for people of all skills and education and strengthens all our cities, boroughs, and townships.
Our Values
Find a way: We do what it takes to solve the problem or find the answer Build the team: We work with each other and all partners to find solutions Collaborate: We are the region’s economic connector Inspire trust: Treat all equally and fairly and focus on the big picture Results first: Focus our work and efforts on outcomes, not on process
Our Principles
To Create Value and Use What We’re Given… We will serve the people, the employers, and the governments of the Lehigh Valley by maximizing the financial resources and partnerships that are available to us in an efficient, professional, and value-added manner.
Lehigh Valley Come here. Start here. Grow here.
520 N. New St., Bethlehem, PA 18018 Phone: 610-266-6775 • Fax: 610-266-7623 www.lehighvalley.org