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Lehigh Valley Retail Development is Up, and Class A Values Top Pre-Recession Highs

Derek-Zerfass-Colliers

Derek Zerfass, Colliers International

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 Township, and around the new Route 33 interchange.

The first quarter 2016 shopping center vacancy rate in the Lehigh Valley was 5.3 percent. This is down from the end of 2015, when vacancy had increased due to supermarket closings. Demand is strong from mid-size/smaller national and local mom and pop retailers. There has been an increase in demand from medical users, fitness and recreational users for shopping center locations.

In addition to the new-to-market retailers like Costco, Nordstrom Rack, Whole Foods and Shoprite, there has been surge of new restaurant concepts like Seattle-based MOD Pizza and locally grown dining and brew-pub/craft beverage locations.

Asking rents have remained in the mid-teens for older centers, but have increased for upper-tier centers and are now in the mid-$20 range. Rents for new centers are in the upper-$20 to low $30-per-square-foot range.

Values have surpassed the pre-recession numbers for Class A retail properties. There has also been an increase in values and demand for B properties. Class C and D properties continue to struggle from a valuation standpoint, but interest has increased.

For larger centers, it is difficult to establish a trend for values since many of the recent trades have been value-add opportunities. Prices for net-leased properties such as drugstores, convenience stores/gas stations, and restaurants have remained aggressive. Smaller strip centers are in high demand and values are strong. We have seen an increase in activity for land sites and vacant buildings, which has raised values for this product type.

PREIT continues to divest its holdings, most recently the 457,594-square-foot Palmer Park Mall. Southmont Plaza and Cedar Point were acquired by DDR-Blackstone Group as part of a portfolio sale. Both The Westgate Mall and the Palmer Super Center recently sold. Palmer Town Center is under contract and Urban Edge has Macarthur Commons and Easton Commons currently on the market.

We can expect to see capital invested in the recently sold properties along with new leasing strategies to make them more competitive.

In the next year, we will see a few new retail centers fully open and a number of those currently in planning stages will commence construction. We will see an increase in renovations and redevelopments at older centers.

Vacancy rates are currently very low for Class A retail and new construction will provide options for retailers coming into the market and those looking to expand. However, this will further weaken the position of older centers. One potential negative is big box retailers, such as The Sports Authority, that are closing Lehigh Valley locations. However, leasing activity will continue to increase and rents will trend upward. Overall it should be a very exciting and active year.

— by Derek Zerfass, Senior Vice President | Allentown, Retail Division, Colliers International. This article originally appeared in the May 2016 issue of Northeast Real Estate Business.

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