Don Cunningham: Manufacturing in Lehigh Valley is Going Strong
By Colin McEvoy on November 15, 2017
This column, written by LVEDC President and CEO Don Cunningham, originally appeared in the Lehigh Valley Business‘s special issue for manufacturing week on October 2, 2017. (Click here to read Cunningham’s previous columns.)
Did you ever see a dog that hears a high pitch noise?
While inaudible to humans, the sound causes a dog to turn its head in a strange puzzlement. This is how I look every time I listen to national leaders and pundits talk about American manufacturing.
Hearing people lament that “we don’t make things in the U.S. anymore” or beating a verbal drum about the “decline of American manufacturing” is a dog whistle to my ears. I wonder if I’m the only one troubled by it.
Manufacturing is the second-largest sector of the Lehigh Valley’s economy. It accounts for $6.9 billion of Lehigh and Northampton counties’ $39.1 billion in annual economic output, or gross domestic product.
More importantly, however, is that manufacturing makes up 70 percent of the region’s current prospects for economic growth, meaning new businesses looking to enter the market or existing ones working to expand.
Today, there are about 680 manufacturers in the Lehigh Valley with about 32,000 employees making everything from aeronautic components to building materials to Mack Trucks to medical supplies and devices to beer, roasted peanuts and baked goods.
America may not be making things in every state and region in the country but it’s making things here.
Inland Industrial Empire
The region’s access to 40 percent of U.S. consumers and 50 percent of Canadian consumers within a day’s drive is a major factor, so is our manufacturing legacy, skilled workforce and quality vocational-technical schools and two- and four-year colleges and universities.
In addition, the Lehigh Valley’s explosion onto the national scene during the last five years as an inland industrial empire moving and distributing goods as part of the e-commerce revolution has added manufacturing growth.
If this is a cost-effective place from which to move and deliver product it’s even more cost-effective to make it here.
Our biggest challenge today is the opposite of most regions that are trying to either build or rebuild a manufacturing base. For the Lehigh Valley, finding a home for new or expanding manufacturers is the challenge.
While a good challenge to have, nonetheless, it’s a difficult one. The building explosion that took place in the Lehigh Valley has been to meet the needs of large industrial logistics and e-commerce centers. A typical building size is from 600,000 to 1.2 million square feet.
During the last three years, about 13 million square feet of new industrial space has been built. Today, there is another 5 million square feet under construction. Nearly all of this is to house very large industrial users, primarily those serving the direct-to-consumer, e-commerce retail market.
Shortage of Smaller-Footprint Space
This building boom has driven up prices and profits for land owners, builders and developers. It also has resulted in a shortfall of smaller industrial flex building of 20- to 100,000 square being built. During the last five years, only two buildings of that size have been added in the Lehigh Valley.
The current vacancy rate for buildings sized between 40- to 80,000 square feet in the Lehigh Valley is 3.6 percent, which basically translates to every building being full. The average age of buildings of this size is nearly 50 years old.
The challenge is that this is the size of building where most manufacturing takes place today. The typical manufacturer operates out of a small building with anywhere from 20 to 100 employees. Technology, machinery and automation have reduced employment but increased production.
Simply put, we need more small industrial buildings.
There is a scramble on to do just that to meet the current interest of manufacturers to expand or come to the Lehigh Valley. Right now, there’s not enough supply to meet demand.
The solution to the challenge is neither quick nor easy. Most manufacturers would rather rent than own so they look for buildings being available. A build-to-suit option can take three years to deliver, which is far too long to wait. And the smaller profit margin of manufacturing doesn’t match well with rental rates driven up by large industrial users.
The quickest solution is the construction of industrial flex building on speculation, meaning without a committed tenant. This presents a funding challenge because it’s not attractive to most lenders. That’s why there are several economic development incentive projects taking place to spur development of these type of building with public support. They are in the beginning stages.
The Lehigh Valley’s manufacturing economy is going strong and could continue to grow during the next several years if we can find the space while the window of opportunity is open. To mix my opening metaphor, the key here is to not end up like the dog who hears the high-pitched sound but never finds the source.
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