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Report says commercial market shows strong rebound

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Hundreds of professionals network in the Lehigh Country Club in Salisbury Township for a real estate event.
Hundreds of professionals network in the Lehigh Country Club in Salisbury Township for a real estate event.

The Lehigh Valley’s strong commercial growth in industrial, office and retail is expected to continue and shows dramatic increases over last year, according to a local firm’s annual forecast.

“I think big box manufacturing and warehouse and office will continue to see growth throughout the Lehigh Valley… I think a lot of out of state tenants will come to the valley, inventory will continue to decline and keep pace with construction,” said Linda Dietrick, managing partner for Dietrick Group LLC, a commercial real estate firm in South Whitehall Township.

Each year, Dietrick Group reveals a report that analyzes the commercial real estate market and forecasts future trends, including residential statistics. Thursday marked the firm’s ninth presentation, which drew hundreds of professionals to the Lehigh Country Club in Salisbury Township.

“Vacancies I think are going to remain low. I think residential is getting healthier” Dietrick said. “I think the market is seeing a rebound. We’re on our way back, baby.”


Highlights in the report included:

• On the distribution side, the vacancy rate was 7.9 at the end of the year, with a net absorption of about 1.2 million.

• The average rents for big box facilities were at $4.13 per square foot.

• As of the end of 2013, distribution centers under construction showed about 3.7 million square feet.

• Capitalization rates for warehouses showed 6.6 percent for the national current quarter, which is down six basis points from last quarter, 47 basis points from a year ago. (This rate of return on a real estate investment property is based on the expected income that the property will generate and is used to estimate the investor’s potential return on the investment.)

• The market rate has come up a little bit -- 12 percent.

• Vacancies are low and show a significant difference from a year ago.

• More than 3.3 million square feet in approved industrial projects last year.

Hillwood Properties, which is building an industrial park in Weisenberg Township has five lots, pad ready, a total of more than 2 million square feet, she said.

As of the end of the fourth quarter of 2013, a host of future development is starting to come online. These projects include The Spring Creek Industrial Park, a Jaindl Land Company and Liberty Property Trust project in Lower Macungie of 2.7 million square feet and the Mill Creek Business Center, another Liberty Property Trust project, which includes two buildings in Lower Macungie purchased by Air Products & Chemicals.

As for flex leases, 2013 showed a lot of renewals, including an average of $5.90 per square foot.


Highlights included:

• Progressive Vision, an eye and surgery center under construction on Hamilton Boulevard in Lower Macungie.

• BBraun purchased 21 and 1/2 acres for its new corporate headquarters in Stabler Corporate Center.

• The average Class A and B office lease average rate was $14 per square foot.

“We had a lot of movement in the medical health care field as well,” Dietrick said. “Cap rates for medical were 7.68 percent, down 3 basis points from last quarter and down 14 basis points from a year ago.”


Historically, retail at the end of the fourth quarter showed inventory at more than 20 million square feet and vacancy of about 975,000 square feet. The vacancy rate overall of the buildings that were surveyed was 4.8 percent.

The cap rates are going down for strip shopping centers, she said. The vacancy rate did make a dip in 2011 and is on its upward swing in 2013 and inventory is available.

South Mall in Salisbury Township is one of the more recent transactions.

“South Mall is under agreement of sale,” Dietrick said. “They have 44 tenants there now, and display a 90 percent occupancy level. That sale will close this quarter I am told.”

The report showed little in the way of retail construction for shopping centers, aside from the proposed Hamilton Crossings project in Lower Macungie Township.

“This project with excessive offsite improvements needed to make it work needs TIF [tax increment financing] money,” Dietrick said. “I think in the end they probably will prevail.”

The acquisition was almost $425,000 per acre and the project will be modeled after the Promenade Shoppes at Saucon Valley, she added.


For residential, statistics are much better this year than they were last year, Dietrick said.

The Lehigh Valley showed 2,626 lots proposed and 844 approved in 2013.

“We are now beginning to see some development,” Dietrick said. “By far, the clear forerunner is the apartments.”

Last year showed 932 apartment units proposed in Lehigh County, followed by 561 in Northampton County.

In 2012, 301 lots were approved, as compared to 844 approved this year.

Many of these developments were stalled or shelved because of the recession, she added.

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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. 4108. Follow him on Twitter @BrianLehigh and read his blog, “Can You Dig It,” at http://www.lvb.com/section/can-you-dig-it.

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