Industrial real estate report shows Lehigh Valley among strongest in nation

By - Last modified: July 17, 2013 at 10:49 AM

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File photo shows industrial buildings along the I-78 corridor.
File photo shows industrial buildings along the I-78 corridor.

A report by commercial real estate advisory firm Newmark Grubb Knight Frank shows Eastern Pennsylvania’s industrial real estate market along the Interstate 81/Interstate 78 corridor, including the Lehigh Valley, had one of its lowest second-quarter vacancy readings since before the start of the last recession.

Northeastern Pennsylvania's submarket saw its supply grow by more than 20 percent from mid-2007 to year-end 2012, making it the fastest growing industrial market in Eastern Pennsylvania, southern New Jersey or Delaware, according to the report.

"The Lehigh Valley is one of the top industrial markets in North America due to its location and access to the New York metropolitan market," William Wolf, senior vice president of CBRE Inc., said in an interview. The global real estate services firm has an office in Fogelsville.

The Lehigh Valley has become part of a regional market with Central New Jersey, meaning a major distribution center will locate either in New Jersey or Eastern Pennsylvania, not both, Wolf said.

"Because the Lehigh Valley marketplace is relatively small compared to New Jersey, there is room for growth," Wolf said. "We have also seen the needs of corporations change as the distribution and e-commerce industry has evolved."

Wolf said labor has increased dramatically and wages are increasing as much more distribution is picked and less full pallets are being shipped. This has increased the labor component of the warehouse dramatically over the last few years, he added.

As long as the Lehigh Valley has available land with infrastructure, especially sewer and water lines, this demand will continue.

"Demand shows that it's a very active market and that keeps our lease rates in check," Wolf said.

NEW INDUSTRIAL CONSTRUCTION IN THE VALLEY

The negative factor of the commercial real estate market in the Lehigh Valley is land with a lack of infrastructure, which will hamper development, Wolf said.

NGKF reported that vacancy rates in the I-81/I-78 market were just 8.2 percent in the last quarter, down from 8.8 percent a year ago and 9 percent in the first quarter. The report shows that the lower regional rate is driven by industrial space being filled more rapidly in the smaller northeast and Lehigh Valley sub-markets, according to NGKF. The report shows total vacancy rates for Central Pennsylvania at 9.2 percent for the quarter, 6.4 percent for Lehigh Valley and 8.2 percent for Northeastern Pennsylvania.

"I have definitely seen a reduction in vacancy rates, I think these numbers are consistent with other firms," Amy Hawley, broker of record for Hawley Realty Inc., said this morning. Her company is a commercial and industrial real estate brokerage firm in Hanover Township, Lehigh County.

The other firms she cited as having similar findings include Cushman & Wakefield, CBRE Inc. and Jones Lang Lasalle.

Hawley is a member of the Society of Industrial and Office Realtors, an organization that she said cited the I-81/I-78 corridor as one of the top five markets in the country as far as degree of activity.

"It's one of the few markets where you are seeing new industrial construction," Hawley said.

IMPROVING BUT INCONSISTENT

For its Lehigh Valley commercial real estate report for the first quarter of 2013, Matt Dorman, vice president of NAI Summit, said this morning that the company's analysis overall shows the Lehigh Valley market is steadily improving but many factors are causing the growth to be somewhat flat and tapered and inconsistent overall.

Several factors contributing to commercial real estate growth in the Lehigh Valley include: companies holding large capital reserves seeking to upgrade facilities, the continued expansion of the medical industry, low interest rates and new stimulus financing incentives, and increased consumer confidence helping retailers, Dorman said.

Factors contributing to slow growth include new health care laws creating uncertainty and impacting confidence, lack of inventory (especially in the industrial sector), the time of year (with summer typically slower) and companies doing more with less, causing a lack of strong growth in employment. As an example, the office sector is lagging based on this factor, he said.

The mid-state market shows almost 152 million square feet of inventory, nearly double the Lehigh Valley and almost triple the size of the northeast part of the state, with 1.5 million square feet of industrial buildings under construction.

Total corridor net absorption, or the amount of space companies are filling for warehousing, manufacturing and other industrial operations, was 2.2 million square feet, up slightly from a year ago, according to NGKF.

The amount of space companies are filling has been growing steadily since the fourth quarter of 2011. The exceptions are the third and fourth quarters of last year, when it dipped some.

Central Pennsylvania absorbed 1.5 million square feet of industrial space in the quarter, while the Lehigh Valley absorbed 970,000 square feet. The northeast shrank.

Central Penn Business Journal Reporter Jim T. Ryan contributed to this report.

Brian Pedersen

Brian Pedersen

Reporter Brian Pedersen covers construction, development, warehousing and real estate and keeps you up to date on the changing landscape of our community. He can be reached at brianp@lvb.com or 610-807-9619, ext. 108. Follow him on Twitter @BrianLehigh and read his blog, “Can You Dig It,” at http://www.lvb.com/section/can-you-dig-it. Brian also has a strong interest in health and fitness. He works part-time as a personal trainer at Steel Fitness Riverport in Bethlehem and earned his personal fitness trainer certification from World Instructor Training Schools.

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