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Q&A: There’s land left for distribution centers

Architectural rendering of The Cubes at Lehigh Valley-Airport Road in East Allen Township. CRG of St. Louis has proposed a 450,000-square-foot industrial building which could be for warehouse distribution and e-commerce fulfillment centers.
Architectural rendering of The Cubes at Lehigh Valley-Airport Road in East Allen Township. CRG of St. Louis has proposed a 450,000-square-foot industrial building which could be for warehouse distribution and e-commerce fulfillment centers.

The region’s warehouse/distribution boom is still doing just fine, thank you.

“It is not near its end. What you see now is a sprawl in development,” Mike Adams, senior vice president of NAI Summit in South Whitehall Township, told Lehigh Valley Business.

The veteran commercial real estate agent says developers now are scooping up sites in outlying areas farther away from highways because of available land and pricing.

“E-commerce, 3PLs [third-party logistics] and distributors realize the excellent location of the Lehigh Valley to major business hubs,” said Adams, who has been in commercial real estate in the Greater Lehigh Valley since 1987.

“… We are one of the top distribution markets in the U.S. and will continue to be next year.”

In his interview, Adams also talked about the retail and office markets, the importance of good highways and the potential effects of the tariff war.

 

How did the Greater Lehigh Valley’s commercial real estate market fare this year? Where is it headed next year?

 

The market is thriving. Building inventory continues to be absorbed and at a high rate. Construction will continue, and the market will remain strong.

What factors (political, social, economic) could affect development and investment in our market?

 

Politically, increasing interest rates could affect pricing and buying of commercial properties. The ongoing tariff fight could lead to a slowdown and job cuts in certain industries, although that has not affected the Lehigh Valley at this time.

 

As for office space, as more people work from home and are more mobile, office space demand may linger.

 

Also, although development is creating many new job opportunities, warehouse users may realize the difficulty of finding labor in a tight market.

What’s your take on the region’s retail and office markets?

 

The office market is flat except for areas that offer economic incentives, such as the city of Allentown. Current market vacancy rate is above 12 percent.

 

Retail as we know it, will continue seeing some choppy water ahead as it reinvents itself.

 

Well-positioned centers will do well. However “B” and “C” centers … are suffering as e-commerce takes away from bricks-and-mortar stores.

 

Retail box space will need to reinvent itself, possibly becoming warehouse space or office telemarketing type space. This recently happened with Aetna deciding to take over the old Wells Fargo call center space at Lehigh Shopping Center off Union Boulevard.

Is the region’s warehouse/distribution boom near its end? Why or why not?

 

It is not near its end. What you see now is a sprawl in development.

 

Areas such as Northampton, East Allen Township and other outlying areas are seeing development as developers are buying land farther away from highways because of available land and pricing.

 

E-commerce, 3PLs [third-party logistics] and distributors realize the excellent location of the Lehigh Valley to major business hubs.

 

Also, it helps a region significantly when you have an intermodal facility, because trucking companies are combating lack of drivers along with monitored tractor-trailer travel time on the highways. Shipping product by rail with shorter transportation time to warehouses will continue to see expanding development in our region.

Do you see smaller buildings as one of the next waves in commercial real estate? Why or why not?

 

As much as we need it in this region, I do not see anyone stepping up to develop this product.

 

The reason is that land and construction are expensive, so a smaller footprint will force rates in those buildings to be higher than typical for our market. Developers are unsure if the market could handle those rates.

 

Smaller “flex” type warehouse space is right around 2 percent, so I believe product is needed ASAP.

 

Currently the only product I know of being developed is being taken on by Lehigh Valley Industrial Park. They should be able to lease that quickly.

 

Should that happen, maybe more developers will jump in the game.

How does the Greater Lehigh Valley compare to the national commercial real estate scene?

 

We are one of the top distribution markets in the U.S. and will continue to be next year.

Do you see construction spending increasing, particularly for commercial structures?

 

Yes for industrial – as mentioned above – as long as the demand continues, as we have seen there will be no slowdown. Retail and office will continue to lag.

If you could change one thing for the region in terms of the commercial real estate market, what would it be and why?

 

Highway access. There is much improvement going on, but if construction continues at its current pace, highway expansion may become outdated as it tries to keep up.

 

I’m worried that the area will continue to see more gridlock. We are seeing it now on Interstate 78, Route 33 and always Route 22.

 

I-78 will most likely become three lanes on each side. The Route 378 and Route 22 west interchange needs to see significant improvement or you will continue to see bottlenecks between Schoenersville and Airport roads. n

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