Valued at more than $100 million, the colossal Madison Farms development in Bethlehem Township is slated for construction to begin in late summer, marking just one of several new projects in the retail, office and industrial sectors fueling economic growth in the region.
But what makes the project different, aside from its scope, is that a New Jersey developer is taking it on and that Jersey enterprises increasingly are looking west for more profitable commercial real estate prospects. According to reports from commercial real estate professionals at the recent Lehigh Valley Commercial Real Estate Outlook and Awards show, it’s a trend that’s likely to continue.
Sponsored by the Greater Lehigh Valley Chamber of Commerce and The Frederick Group, the event drew more than 450 people to the Holiday Inn in Breinigsville to hear about recent marketplace trends and activities.
The developer of Madison Farms, Jeffrey Persky, executive vice president of Kushner Real Estate Group of Bridgewater, N.J., said more and more people are arriving from New Jersey to live here for tax and financial benefits, something that drew the company to develop several projects in the region. Additional benefits include an educated workforce, access to prestigious universities and proximity to highway and air transportation, Persky said.
“We’re running out of tenants in New Jersey because they’re all coming here,” Persky said. “The real action seems to be happening in Pennsylvania. You have a better business climate.”
Madison Farms, off Freemansburg Avenue near the intersection with Route 33, will include a shopping center, 570 apartments, 132 townhouses and 57 single-family houses, among others.
“We have signed a lease with ShopRite to occupy the pad,” Persky said. “We’ll be breaking ground in late summer.”
Construction for the first phase of the ShopRite store, a New Jersey-based supermarket chain, and first 230 apartments will begin simultaneously, Persky said.
In Pennsylvania, the company also developed Liberty Park, an upscale apartment development in Allentown, and Parkland View, a 378-unit complex in Upper Macungie Township. Persky said his company also has two new projects that are in the initial stages of site acquisition in the Lehigh Valley, but declined to give an exact location.
Meanwhile, investors from New Jersey and New York also are seeing increased opportunities for growth in the Valley for the office market. Here’s a look at trends in the region for office, industrial and retail real estate:
The TEK Park acquisition in 2012 is one example of a transaction that continues with the theme of people outside the Greater Lehigh Valley investing in the market here, said Lisa Pektor, regional president of PennCap Properties of Bethlehem.
In April 2012, a group of New York-based investors purchased the 800,000-square-foot property in Breinigsville for more than $50 million. It houses tenants such as CyOptics Inc., Liquid Interactive and Klunk & Millan Advertising.
Class A office space will most likely continue a downward trend, Pektor said.
“The Stabler Corporate Center might be immune to this trend,” Pektor said, referring to the large corporate office near Route 309 and Interstate 78. “We all know real estate is all about location.”
Natural gas, education, health care and technology are four main market segments that will continue to show growth, Pektor said. She also said there would be fewer short-term leases for the office market.
Construction costs will continue to rise and, as inventories have been depleted, there will be more new construction.
“Capital markets have become a lot more accommodating,” Pektor said.
The Lehigh Valley is viewed as one of the top 10 industrial markets in the U.S. and probably in North America, said Bill Wolf, executive vice president of CB Richard Ellis Inc. of Allentown.
“That affords us many opportunities,” Wolf said, including many corporations in New Jersey to move west to the Lehigh Valley.
Vacancy rates for the industrial market have continued to decline to about 8.1 percent, Wolf said.
“A lot of that is fueled by new construction,” he said. “I think in 2013, we will continue to see a decline in vacancy rates.”
Fueled by unprecedented demand, construction has picked up and it’s pushed rental rates back up for the industrial market, Wolf said.
Manufacturing will continue to be big in the Valley, as shown by new construction for Bimbo Bakery, Freshpet and Ocean Spray, and other manufacturers, bringing almost 2 million square feet of new industrial space and more than 1,350 jobs to the region.
Future needs for the industrial market include more parking for trucks, additional labor, trailer storage, changing warehouse uses (with a greater focus on e-commerce) and brownfield redevelopment.
“The Valley is located very conveniently for the distribution uses,” said David Jaindl, president of Jaindl Land Co. of Orefield. “I would see that trend continue.”
He said the company’s focus has been on acquiring manufacturing facilities. Now, he is looking ahead to his Spring Creek Properties project in Lower Macungie, which includes 449 industrial and 38 commercial acres to be developed.
The project also includes residential and corporate uses, plus a commitment of land dedicated to recreation and open space.
“The Valley is just a great place to be, [with] tremendous infrastructure that we’re used to,” Jaindl said. “We’re going to hit new highs very soon.”
The retail market also showed growth in certain areas.
“If you build it, they will come, and that’s the way it is with retailers,” said Russ Menk, principal partner at Arrow Real Estate Services of Doylestown. “The demographics are absolutely here.”
Locating medical facilities in shopping centers is a trend that will become more common, as evidenced by Lehigh Valley Health Network, which recently leased space in Bangor Plaza Shopping Center. Fitness centers, dollar stores and sports bars will continue to be very active in 2013, Menk said.
The top retail project under construction is The Crossings at Marshalls Creek on Route 209 in Monroe County, Menk said. Target and Cosco are signed on as major tenants for the proposed Hamilton Crossings project in Lower Macungie, and the site might add a Hobby Lobby to the location.
Continuing retail trends for the Valley include store closings such as Sears, J.C. Penney and Kmart and some grocers continuing to go under, including A&P, Pathmark, Super Fresh and Acme.
“Grocers will not go into a ‘power’ center where you have a Target,” Menk said. Large stores such as Target will continue to sell more groceries, Menk said.