With increasing rental rates, strong investor demand for core product and record levels of speculative construction, spirits are high in the Lehigh Valley with regard to industrial real estate opportunities. The record volume of product deliveries the past two years underscores the strong industrial demand in the Lehigh Valley. Vacancy has dropped from 15.9 percent in the first quarter of 2009 to a record-low 4.9 percent at the end of 2015, according to CoStar. The average net industrial rental rate jumped 11.1 percent during the past 18 months, an even more impressive figure when compared against the 10-year average of 1.65 percent rental rate growth in Lehigh Valley for modern distribution buildings. After many years of flat rental growth, year-end 2015 industrial leases were completed in the $4.75- to $4.95-per-square-foot range in the Allentown-Bethlehem-Easton, Pennsylvania MSA. In 2016, expect a modest increase in rental rates as the delivery of new construction across the northeastern Pennsylvania region will slow growth and push vacancy rates higher. Leasing activity has been broadly distributed along the regional I-78 and I-81/I-80 corridors. Within the valley, industrial growth has occurred primarily along the main interchanges of I-78, U.S. 22 and Route 33. In the past 12 …
Market Reports
The Lehigh Valley has experienced significant residential growth over the last 20 years, and retail development is now catching up. High-growth suburban townships have seen significant retail development. Mixed-use projects that include retail are planned or underway in downtown Allentown, Bethlehem and Easton. New pad site and outparcel development has continued to be strong throughout the entire valley. The Hamilton Boulevard/Route 222 corridor in Lower Macungie has been the most active area for new construction. The 560,000-square-foot Hamilton Crossings in Lower Macungie is scheduled to open shortly and will feature Target along with the valley’s first Costco, Nordstrom Rack and Whole Foods. Trexler Business Center, a new project anchored by Movie Tavern, is also in the works. These developments will keep local residents shopping in this area versus traveling to the Macarthur Road corridor, Cedar Crest Boulevard or the Promenade Shops. The 140,000-square-foot retail component at Madison Farms in Bethlehem Township is nearing full completion and the 270,000-square-foot Westgate Mall is in the middle of a major renovation. New projects are in the planning stages along Route 309 in North Whitehall Township, Macarthur Road in Whitehall Township, Airport Road in East Allentown, Eighth Avenue in Bethlehem, Route 33 in Bethlehem …
Metro Philadelphia’s industrial market saw strong demand, developer confidence and declining vacancy rates in 2015. Asking rents averaged $4.43 per square foot for the region, a 4 percent increase from 2014. The overall vacancy has decreased to 7.7 percent as demand kept pace with 5.7 million square feet of completed spec development. The only submarket that is posting greater than 10 percent vacancy is New Castle County, Delaware; however, New Castle’s vacancy rate was trending downward at the end of 2015. We continue to see healthy demand for industrial space in 2016. There could be some impact from global uncertainties, but these will be offset by continued on-shoring of manufacturing requirements and last-mile delivery expansion. Companies seeking between 25,000 to 80,000 square feet have seen limited availability in most submarkets, particularly for purchase. Due to strong demand and reduced availability for modern, net-leased, single-tenant buildings, some investors must consider lesser-quality assets and/or secondary locations. Sale prices and rents have increased. It is not unusual for modern bulk facilities with long-term leases in place to trade in the $90-per-square-foot range. In one recent deal, a private investor paid more than $78 per square foot for the leaseback transaction of an 85-year-old …
Philadelphia’s apartment market remains bright as increasing employment fosters stable economic growth, which in turn is bolstering apartment operations. Employers in the metro, which is known as the center of economic activity in Pennsylvania, will increase hiring 1.2 percent this year, adding 35,000 jobs. In 2014, new jobs increased 1.6 percent and the unemployment rate decreased 130 basis points. Total employment is on the upswing, recovering nearly all of the jobs lost during the recession. The favorable employment conditions are supporting demand for apartments and swiftly improving performance throughout the metro, prompting developers to start new multifamily projects. Builders in Philadelphia are focusing their attention in Center City, which includes the central business district and central neighborhoods of Philadelphia, where nearly 25 percent of this year’s deliveries will be placed into service. Developers are on track to complete 3,600 units in 2015, increasing total apartment inventory 1.4 percent. Last year 2,400 rentals were delivered. Part of the reason that demand is especially strong in Philadelphia can be attributed to the increasing popularity of living in the urban core among young professionals and baby boomers. The lack of developable in-fill locations in the area is prompting developers to convert office buildings …
How long will the scorching hot multifamily market hold up? The transactional markets continue to be bolstered by low interest rates, as well as an insatiable appetite from both private and institutional equity. I don’t believe the multifamily market will cool off in 2015. Our HFF multifamily team in Philadelphia will soon be shattering price per unit records in both the suburbs and in Center City Philadelphia. Interestingly enough, half of our transactions will be purchased by new buyers, meaning buyers new to our market, new start-up companies, or established funds that are new to the multifamily arena. As is typically the case, attractive debt and abundant equity are fueling the fire. With respect to multifamily debt, it has been encouraging to see some true competition back in the market. We enter 2015 with an extremely robust debt environment wherein the agencies are being forced to compete with regional banks, life companies and CMBS options. Back in October, HFF brokered the sale of Yardley Crossing in Bucks County. This 196-unit, Class B asset, built in the early 1970s, was priced slightly below a 6 percent cap rate and roughly $170,000 per unit, but still commanded 25 tours and 15 offers. …
Accessibility, amenities and coworking spaces are driving the suburban and urban real estate markets in Philadelphia. While suburban office tenants prefer to have access to transit and amenities, Center City office tenants seek experiences and collaboration with new coworkers. Suburban Perspective The Philadelphia suburban market consists of 59.4 million square feet comprising 13 distinct submarkets. The majority of this inventory consists of dated commodity office space, mostly built prior to 1990. With an overall vacancy rate of 20.8 percent and average asking rents of $24.90 per square foot, the Philadelphia suburban market has been less dynamic than its Center City counterpart. Although many older properties suffer from functional obsolescence, well-maintained assets with access to major roadways/public transit and amenities outperform the market average. For example, the Radnor, Conshohocken and Bala Cynwyd submarkets remain the three strongest submarkets in the region. Vacancy rates in these markets range from 2 to 14 percent, with average asking rents ranging from $30.75 to $37.00 per square foot. All three of these submarkets have immediate access to major roadways, public transit and amenities. Suburban office developers have taken note of the strong fundamentals in these areas as well as Center City Philadelphia. They have created …
Over the last few years, tight conditions in Pittsburgh’s multifamily market have allowed operators to aggressively push rents among all class levels. This year, a surge in multifamily completions will put elevated pressure on vacancies, but more jobs and new households will keep across the board operations in positive motion, supporting another year of rent growth. Developers are expected to build more than 1,600 multifamily units in 2014, the largest expansion of supply in over ten years. Most new multifamily projects in Pittsburgh are located north and south of the central business district where construction costs are lower. For example, in Cranberry Township in the north many units are strategically situated around the newly announced $72 million UPMC Lemieux Sports Complex. In southern Pittsburgh, added drilling activity in the Marcellus Shale and energy-related company expansions encouraged demand for rentals, spurring construction of several multifamily and residential communities. A minor overstock of brand-new rentals and single-family homes will move vacancy up somewhat in select submarkets, slowing down the previous year’s persevering rent growth. An improving economy in Pittsburgh and further rent gains will sustain strong buyer demand throughout 2014. Employers will add 24,600 jobs in 2014 to expand employment in Pittsburgh …
In Pittsburgh’s industrial market, the fourth quarter of 2013 finished in much the same way it began and maintained throughout the year; solid if unspectacular growth. The vacancy rate fell from 7.9 percent in the third quarter to 7.7 percent in the fourth quarter and dropped three basis points in total over the course of the year. The lack of quality Class A warehouse space continues to be a factor with vacancy levels dropping to an astounding 2.97 percent. The greater Pittsburgh’s industrial market is approximately 172 million square feet spread out over the six-county region that includes Allegheny, Butler, Beaver, Westmoreland, Washington, and Armstrong counties. The Class A portion is approximately 17.5 million square feet. With a vacancy rate of 2.97 percent, we only have a total availability across our total market of 519,750 square feet of Class A product. This is below equilibrium for a healthy market. Furthermore, the definition of Class A product in the Pittsburgh region would not necessarily hold up in markets with more speculative developments such as Columbus or Lehigh Valley. Although Pittsburgh has hit the radar of the national real estate community for the opportunity on the investment side, we are still very …
According to the Allegheny Conference on Economic Development, in 2013 there were more people working in Pittsburgh than ever before. The region has seen five consecutive years of continuous expansion and a current capital investment of $3.2 billion. Pittsburgh ranks among the top 15 metropolitan areas for five-year private sector job growth according to On Numbers Economic Index. Possibly more impressive than the jobs themselves, the earnings growth in the region over the same five-year period was 24.3 percent — the highest increase in the U.S. Pittsburgh’s unemployment rate fell to 6 percent in February, with the seven-county region posting an increase of 2,400 jobs in the same period. Among the companies expanding in Pittsburgh is Cigna Health. The company, which currently employs more than 1,400 in the region, plans to grow by 10 percent in 2014, adding approximately 150 new management, training and customer service positions to its regional post in Pittsburgh’s Parkway West submarket. This is great news for retailers in the area, which is also known as the Airport Corridor and which has been a mecca for retail for several decades. In recent years, retailers have struggled to survive here, as the submarket suffered from over-development and …
At the end of 2013, the Federal Reserve Bank of Philadelphia reported that year-to-date building permits rose by 17 percent in Pennsylvania, 36 percent in New Jersey, and 21 percent in Delaware as compared to the same 11 month period in 2012. Much of that increase was due to multifamily development. While not yet back to pre-recession levels, multifamily permitting has steadily increased since the third quarter of 2010 in the Philadelphia metro area. As of August, there were a total of 3,485 units approved for the previous 12 months, high enough to rank 25th in the nation for multifamily permit authorizations. In 2013, there were 1,183 multifamily units delivered in eight new development projects. Currently, there are nearly 4,800 units in 27 separate projects in various stages of construction and some 70 projects in the planning stages for a total of 12,740 additional units in the pipeline. Then there are proposed new developments that have been announced, but are not yet in the permitting process. These represent an additional 3,280 potential units scattered throughout the tri-state area in 15 projects. It is unlikely that all of these proposed projects will be constructed, but it is indicative of the optimism …