Understanding Lehigh Valley Today, So We Can Affect Tomorrow
By Don Cunningham on May 26, 2015
This column, written by LVEDC President and CEO Don Cunningham, originally appeared in Lehigh Valley Business on May 25, 2015.
The only way to affect tomorrow is to understand where we are today.
Toward that end, the Lehigh Valley Economic Development Corp. (LVEDC) has released its first in what will be a quarterly Lehigh Valley Real Estate Report that summarizes the Lehigh Valley real estate and economic development market, particularly in comparison to state and national trends.
Among the findings from the first eight-page report is that the Lehigh Valley commercial office market is showing signs of improvement, and compares favorably to the national office market. The Lehigh Valley’s overall office market vacancy rate is 11.8 percent, compared to 15.8 percent nationally.
The report was released this month at a LVEDC Brokers and Developers Council event at which a panel of area experts discussed the state of the Lehigh Valley office market.
“Though there is still a significant amount of office space that is unoccupied, the competition from tenants for top quality office space is strong as the recovery gains momentum,” said Jody King, a commercial real estate broker and vice president with CBRE. “Because of this, we are beginning to see developers move closer to starting construction on new offices.”
There are 1,325 office buildings in Lehigh and Northampton counties for a combined total of more than 24 million square feet of office space. The majority of those buildings, 708, are deemed class C offices. There are 567 class B office buildings and 50 class A buildings in the Lehigh Valley.
The total average rental rate of that space is $19.82 per square foot. Square foot rates vary greatly depending on the class of the office space and where it is located. Much of the class C space in the region is old, with an average building age of 81 years old. The class B space averages 60 years old. The average age of the Lehigh Valley’s class A office space is 18 years old.
The urban revitalization zone in Allentown, formally called the Neighborhood Improvement Zone, or NIZ, has led to construction of the region’s newest office space, and because of the state-financing incentives has brought class A space to the market that is leasing below market rate.
“In addition to offering very attractive solutions in the NIZ and the CRIZ, the Lehigh Valley office market has shown in recent months that the suburbs are still very viable and attractive alternatives for small and large office users,” said Phillip Schenkel, a commercial real estate broker, and vice president at Jones Lang LaSalle.
The LVEDC report lists office buildings in both counties that have been sold during 2015 for more than $1 million. There were 19 such sales so far this year, the largest of which was the purchase of the LSI Corporation headquarters building by Patriot American Parkway for $34.
Vacancy rates below the national average are very encouraging. Larger cities and metropolitan areas are typically the prime location for corporate headquarters. Lehigh Valley office space is often used for what a company calls “back office” functions, such as administrative functions, data processing and corporate support functions. Health care, the region’s largest employer, is a dominant user of office space in the Lehigh Valley. In addition, the finance and insurance sectors are a large user of office space in the market.
LVEDC is using a deeper understanding of the office market, the location and age of its buildings, its price points and current industry clusters to help inform its effort to market more professional office users to the region.
“Barring extraordinary change to the general business climate, commercial real estate in 2015 is poised to continue trending positively in the Lehigh Valley,” said Jessica Goffredo-Pantaleo, leasing representative for PennCap Properties, the largest owner of office buildings in the region.
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