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HITTING THE RESET BUTTON? Office construction slows in Allentown yet leasing still strong

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The dramatic resurgence of commercial development that revitalized downtown Allentown the past few years has reached a pivotal point.

While restaurants and retail developments have taken off following the opening of PPL Center two years ago, construction of office space in the city has slowed considerably.

In its place, residential construction, namely upscale apartments, has taken over as the dominant form of development. And that growing desire of people to live in downtown is really what's going to drive the next round of office development in Allentown, officials said.

Millennials and other young executives are showing an increasing interest in living close to their workplace. Doing so allows them to participate in nightlife after hours, walk to work, network more easily with colleagues and shop in local stores, taking part in an authentic live-work-play environment.

And although construction of offices has slowed in Allentown, there is still demand, developers said. Furthermore, they are looking to establish the live-work-play atmosphere in Allentown.

One needs to look no farther than what's happening to the urban environment of Philadelphia to see a similar effect also taking shape in Allentown. The scale, size and design of the office buildings going up in Philadelphia can be seen as an influence on the projects planned for downtown Allentown.

When this is coupled with the influx of urban millennials seeking the live-work-play environment, a renewed vigor in office construction projects could occur in Allentown.

But whether Allentown sees as much significant office growth as Philadelphia, even on a smaller scale, remains to be seen.

“Employers' ability to retain and attract workers is impacted by the environments that they are working in,” said J.B. Reilly, CEO of City Center Investment Corp. His company is the developer behind the bulk of new multimillion dollar projects in Allentown, including Five City Center and Tower 6, two office buildings that are planned.

“Young people want to live in an urban environment,” Reilly said.

Since 2014, Reilly's City Center Investment Corp. has built and opened multiple buildings employing hundreds of office workers and featuring many retail and restaurant establishments, as well as developed a 170-unit apartment building. Another City Center apartment building is under construction and the city this month approved a third for construction.

“Building apartments in downtown goes hand in hand,” he said.

There has been significant growth in the downtown's residential developments, namely the Strata luxury apartments across from PPL Center at Seventh and Hamilton streets and the recent construction of Strata II around the corner on Sixth Street. Both are City Center projects.

One of the few large office projects under construction, the expansion of the Butz Corporate Center at Ninth and Hamilton streets, built by Alvin H. Butz Inc., marked the completion of its third phase this month. The 59,997-square-foot building offers seven floors of office space and one level of parking.

Company officials say the goal is to attract a variety of office tenants, including smaller ones.

The building joins a trio of projects in the works for people looking to work in an urban environment – Landmark Tower, City Center Five and Tower 6.

While several office development projects in Allentown have been put on hold, the growth is not necessarily stopping. It's just taking a little bit longer than expected.

Case in point – it's been 32 years since Bruce Loch introduced a plan to build a 33-story tower in the city.

In 2013, Loch reintroduced the idea, which he proposed in 1984, and in 2015 earned approval from the city's planning commission.

While construction on the $70 million Allentown Landmark Tower at the corner of Ninth and Walnut streets has not begun, Loch said he is confident he can build and fill the tower.

It would be two floors of retail, 24 floors of offices, seven floors of condominiums and a parking deck. He expects construction to begin 90 to 120 days after leases are signed.

Loch said he is seeking a major tenant and is exploring New Jersey, New York, Delaware and Maryland. Interest also is coming from foreign companies, he added.

“We have a lot of demand; all of our prospects are coming from the major cities and outside the Lehigh Valley,” said Loch, a Certified Public Accountant who leads an accounting and consulting firm in South Whitehall Township. “We've got people really beating the bushes hard. … It requires a lot of energy and resources.”

The tower would go up across from City Center Investment Corp.'s planned Five City Center Urban Innovation Campus, which encompasses an entire block in the Seventh, Eighth and Hamilton street area. It includes a 17-floor tower with mainly offices and some retail on the ground floor and a 19-floor residential tower of 175 apartment units, with office and retail included.

In downtown Allentown, office demand is still strong, according to Reilly.

The emergence of Allentown's downtown nightlife, with new bars and restaurants, is creating an exciting atmosphere, particularly for young people who live and work in the downtown, Reilly said.

Loch said he remembered when activity on the sidewalks used to end at 5 p.m., but now on any given weeknight, there are people out and about, which will feed the growth of offices.

“There's an energy that is really building,” Loch said. “We are just at the beginning of this. It's going to change the whole dynamic. We are at the infancy of a major, major rebirth of the third largest city in Pennsylvania.”

Yet some office spaces haven't filled up, even in the newly built City Center properties.

As an example, City Center Three, which opened on the 500 block of Hamilton Street in 2015, has two floors of office space available, Reilly said, who added he is negotiating with a potential tenant.

Banking on additional office growth, City Center recently bought another office property, The Morning Call building, but Reilly is not yet marketing that site.

Meanwhile, the construction of Tower 6 is right around the corner, as demolition of existing buildings could occur in about two weeks. The 12-story office building will go up at the corner of Hamilton and Sixth streets and is expected to be finished by early 2018.

“Leasing activity is strong,” Reilly said. “We have several signed leases, and we are in advanced negotiations with several companies, as well. That building provides ownership opportunities through the purchase of condo units.”

This Class-A building model would allow businesses to own their office units. The classification designates buildings that are top-of-the-line, high-quality investment properties.

Aside from Serfass Development Partners of North Whitehall Township, which previously announced its construction firm would build Tower 6 and could possibly move its office there, no other tenants have been named.

Five City Center is the next building in line to go up.

“These buildings are all demand-driven; we are talking to people about that building as well,” Reilly said. “I think we feel good about the office market. The vacancy rate is very low in the Valley.

“Most of the growth comes from existing businesses. There's a lot of businesses that are growing, so as a result, there's good demand across the Valley.”

Expansion of existing office space, such as the Butz Corporate Center, also shows that office demand has not died.

“We anticipate the end users for this building will be office-use related but also anticipate that they will be looking for more contemporary space requirements, meaning less individual offices and more open space allowing for better office interaction,” said Margaret McConnell, enterprise marketing manager for Alvin H. Butz.

Work is underway to move United Fiber and Data's sales headquarters into the building, as well as about 2,500 square feet of “plug and play” executive office suites. These are for tenants who would like a downtown office or new enterprise and get their presence in Allentown started immediately but don't need a ton of general office space, she said.

Final negotiations also are underway for several other tenants.

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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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