LVEDC President & CEO Don Cunningham speaking at the Greater Lehigh Valley Chamber of Commerce’s 2018 Commercial Real Estate Outlook.

Along with developers and local governments who receive property taxes, one of the biggest winners from the Lehigh Valley’s industrial growth and e-commerce explosion over the last five years have been lower-skilled workers with high school educations.

That was among the messages conveyed by Lehigh Valley Economic Development Corporation (LVEDC) President & CEO Don Cunningham, who gave an overview of the regional economy during the Greater Lehigh Valley Chamber of Commerce‘s 2018 Commercial Real Estate Outlook on April 5.

The explosion of online retail and the rise of online fulfillment centers to serve direct-to-consumer shopping has created a market-based minimum wage of $15 per hour and full employment in this category, Cunningham said.

“If you’re willing to pick and pack, drive a forklift, and work a demanding job at a fast pace – just like was required back in the day of steel mills and slate quarries – you’re going to make more than in other jobs here, including traditional retail,” he said. “Yet, it remains the part of the Lehigh Valley economy that we love to hate.”

An announced crowd of more than 600 real estate developers, engineering and maintenance firms, and executives attended the 2018 Commercial Real Estate Outlook, which was held at the Holiday Inn in Upper Macungie Township.

LVEDC was a major sponsor of the event.

An announced crowd of more than 600 real estate developers attended the Greater Lehigh Valley Chamber of Commerce’s 2018 Commercial Real Estate Outlook at the Holiday Inn in Upper Macungie Township.

Michael Lesavoy, a general appraiser from The Frederick Group, discussed the office market of the Lehigh Valley. Sales volume has gone up steadily since the Great Recession and have begun to stabilize in recent years, he said. The region saw $120 million in sales in 2016, and $108 million in 2017.

Caitlin English, leasing representative with Duke Realty, gave a presentation about the industrial market. She called 2017 “truly a year of development” in the market, with more than 6.1 million square feet in spec construction during the year, and a vacancy rate of 5.5 percent in Q4 2017.

The Lehigh Valley saw 9.7 million square feet of industrial construction in 2017 and 3 million square feet in year-to-date leasing activity, according to English, who cited the Cushman & Wakefield Eastern Pennsylvania Industrial Team’s 2017 Q4 submarket report. The region experience year-to-date overall absorption of 1.2 million square feet, English said.

Jon Knudsen, Director of Leasing with Hanna Commercial Real Estate, discussed changes in the retail marketplace, noting the closure of local and national units by HHGregg, Toys R Us, Sears, Macy’s, CVS, JCPenney, and more.

The “Amazon effect,” or ongoing disruption of the online and physical retail market due to e-commerce, means that retailers cannot afford even minor rent increases. Malls are the most impacted properties, Knudsen said, with store closures leading to lost income and traffic, as well as a ripple effect that can affect all of its tenants.

Knudsen said landlords need to consider alternative anchors and replacement uses, such as medical, entertainment, fitness, distribution, and religious establishments. He said a property becomes stigmatized when it loses an anchor, and creating a new narrative becomes essential.

“Little things like getting renderings done, changing you pylon, anything you can do to kick the narrative of vacancy is the most important investment you can make,” he said. “Yes, its costs money, but that is how you reposition your property effectively.”

The Chamber also distributed its 2018 Commercial Real Estate Development (CRED) Awards, which recognize the most innovative and accomplished commercial real estate organizations, developers, builders, and designers.

This year’s winners included:

• CRED Community Development Award: IBEW Local 375 for their new headquarters at Seventh and Walnut streets in Allentown
• CRED Adaptive Reuse Award: Cityline Construction for their conversion of the former St. Luke’s University Health Network information technology building in Fountain Hill into 22 luxury apartments
• CRED Vision Award: Moravian College for their conversion of the Bethlehem 24/7 Racquetball Club into its Sports Medicine and Rehabilitation Center