www.lehighvalley.org

Q4 2015 / Q

1 2016

LEHIGH VALLEY COMMERCIAL REAL ESTATE REPORT

ISSUE # 004-5

OFFICE & INDUSTRIAL MARKETS

2 COMMERCIAL REAL ESTATE REPORT • Q4 2015 / Q1 2016

CURRENT CONDITIONS

Overall, the commercial real estate market fundamentals continue to remains strong across the office, industrial and flex markets.

The national office vacancy rates, as reported by CBRE, reached 13.2% in Q1 2016, virtually unchanged compared to the 13.9% rate in Q1 2015. The Lehigh Valley office vacancy rates are significantly lower than the national average, reaching 10.10% in Q1 2016. This, likewise, is virtually unchanged from the 10.8% regional rate in Q1 2015. The industrial real estate market remains strong in the Lehigh Valley, with an aggregate vacancy rate of 7.5% for Q1 2016. That is an increase over the 5.1% regional vacancy rate in Q1 2015. Larger buildings continue to have low vacancy rates, with industrial vacancy rates at 5.9% for 500K SF and above. The rates are 10.3% for 100K-499K SF, and 7% for less than 100K SF. The Lehigh Valley’s GDP is $35.4 billion, ranking 75th out of the 381 largest U.S. metropolitan statistical areas. It is higher than that of the state of Vermont and 94 other countries in the world.

One of the core principles of the Lehigh Valley Economic Development Corporation (LVEDC) is to serve as the leading source of economic data and market intelligence on the Lehigh Valley’s economic assets and resources to serve our economic strategies, marketing efforts, and the needs of our stakeholders. To that end, LVEDC prepares a series of quarterly reports about the real estate climate in the Lehigh Valley. This report focuses on the region’s office, industrial, and flex markets.

BROKER PERSPECTIVE “Between Q4 2015 and Q1 2016, the Lehigh Valley office market demonstrated continued strength, fueled by ongoing population growth and strong economic fundamentals. With limited large blocks of space available despite ongoing construction planning in the Allentown NIZ, we expect landlord favorable conditions throughout the rest of 2016 for well-located, quality assets.”

- Lauren Gilchrist, Vice President, Director of Research for Philadelphia, JLL.

3COMMERCIAL REAL ESTATE REPORT • Q4 2015 / Q1 2016

VACANCY RATE (PERCENT)

OFFICE MARKET

24,899,343Total Inventory (SF)

36,908Q1 2016 Net Absorption (S F)

$20.68Average Asking Rent

350,265Total Under Construction (SF)

10.10%Total Vacancy

507,025YTD Net Absorption (SF)

2.28%YOY Rent Growth

225,124YTD Deliveries (SF)

Source: CoStar, LVEDC Research

MARKET SUMMARY

SUPPLY & DEMAND2014 Q4 2015 Q1 2015 Q2 2015 Q3 2015 Q4 2016 Q1

200K

100K

0

SF

Deliveries (supply) Absorption (demand)

11.6K 18.2K0.0K 0.0K 0.0K 0.0K

218.3K 225.1K 237.2K

-36.2K

50.9K 36.9K

ASKING RATE (PER SF)

Q4

Real Estate Class

Q1 Q2 Q3 Q4 Q1

Vaca

ncy

Perc

ent

A B C

2014 2015 2016Q4 Q1 Q2 Q3 Q4 Q1

2014 2015 2016

10%

15%

20%

11.5%

8.7% 8.5% 8.3%8.2%

20.6% 20.7%18.3% 20.8% 21.0% 18.6%

7.5%6.4% 6.4%6.6% 6.2%6.2% 6.1%

$25.80

$23.65

$21.50

$19.35

$17.20

$15.05

$25.43 $25.28 $25.28 $25.52 $25.92 $25.99

$18.41

$15.58

$18.13 $18.12$18.19 $18.52 $18.84

$16.41 $15.89 $15.85 $15.85 $16.24

4 COMMERCIAL REAL ESTATE REPORT • Q4 2015 / Q1 2016

VACANCY RATE (PERCENT)

INDUSTRIAL MARKET

108,375,345Total Inventory (SF)

69,802Q1 2016 Net Absorption (S F)

$4.92Average Asking Rent

1,347,955Total Under Construction (SF)

7.50%Total Vacancy

3,444,668YTD Net Absorption (SF)

0.61%YOY Rent Growth

5,748,122YTD Deliveries (SF)

Source: CoStar, LVEDC Research

MARKET SUMMARY

SUPPLY & DEMAND2014 Q4 2015 Q1 2015 Q2 2015 Q3 2015 Q4 2016 Q1

4M

3M

2M

1M

0

SF

Deliveries (supply) Absorption (demand)

0.6M

1.3M1.6M 1.7M 1.6M

2.3M

1.6M

0.7M

2.0M1.7M

0.2M

4.0M

ASKING RATE (PER SF)

Q4

Real Estate Class

Q1 Q2 Q3 Q4 Q1

Vaca

ncy

Perc

ent

500K+ 100K to 499K Less than 100K

2014 2015 2016Q4 Q1 Q2 Q3 Q4 Q1

2014 2015 2016

$5.00

$4.75

$4.50

$4.25

$4.00

$4.30$4.23$4.23 $4.23

$4.27

5%

10%10.0%

1.2% 2.8%

8.5%

3.4% 3.1%3.1%

5.9%

7.7%

10.3%

7.3%

6.1% 6.1%

6.6% 7.0%

5.9%6.9%

5.7%

$4.95 $4.98 $4.97 $4.97 $4.99 $5.02

$4.29

$4.04

$4.29

$4.17

$4.23$4.23 $4.23

5COMMERCIAL REAL ESTATE REPORT • Q4 2015 / Q1 2016

BROKER PERSPECTIVE }The industrial real estate fundamentals in the Lehigh Valley are strong. In 2016 we are seeing user demand is quickly outpacing the supply of modern product. Both national tenants and developers alike continue to see the need grow their presence within the Lehigh Valley market.” - Sean Bleiler, Senior Vice President, CBRE

6 COMMERCIAL REAL ESTATE REPORT • Q4 2015 / Q1 2016

PROPERTY BUYER OF RECORD SELLER OF RECORD PRICE MUNICIPALITY CLASS

9658 West Hills Ct Watson Land Company WHBC Building D, LP $43,348,000 Weisenberg Industrial

2460 Brodhead Rd IPT Lehigh Valley DC, LLC OSRAM SYLVANIA $37,600,000 Bethlehem Industrial

9747 Commerce Cir IPT Lehigh Valley DC II, LLC PVI WIP 9747 Commerce Circle LP $27,500,000 Weisenberg Industrial

4815 Hanoverville Rd TC LVTC, LLC East P I, LLC $14,146,100 Lower Nazareth Land

1530 Valley Center Pky OC 1, LLC 1530 Valley Center Pky LP $4,950,000 Hanover (NC) Flex

1655 Valley Center Pky Bermuda Ridge LLC Bethlehem Lvcc One LP $4,725,000 Hanover (NC) Office

2014 City Line Rd 2014 City Line Developers Corp Nephrology Ventures LLC $4,415,658 Bethlehem Office

81 Highland Ave 81 Highland Partners LP The Guardian Life Insurance Company of America $3,200,000 Hanover Office

520-528 N New St 520 North New Street LLC Glemser Bethlehem Property LP $3,000,100 Bethlehem Office

6635 Tilghman St Osterman Propane LLC Trexler-Haines Inc $1,460,600 Upper Macungie Office

2131 Hanover Ave Scheler Realty Of Lehigh Valley LLC Frank Banko III $1,377,000 Allentown Flex

30-40 W Broad St Bethlehem-Boyd LP Valley Theatres Inc $1,350,000 Bethlehem Office

700 N Fenwick St Jmm Holdings LLC Homax Products Inc $1,300,000 Allentown Industrial

4145 Airport Rd Steven Mortazavi WBB Associates LLC $1,275,300 Hanover (NC) Land

4383 Hecktown Rd Jaxon 2 Enterprises LLC $1,200,000 Lower Nazareth Industrial

4942 Route 309 VB Lehigh Realty LLC Wtro Properties LLC $1,000,000 Upper Saucon Land

1928 W Hamilton St Posh Props 37 Lafayette LP Wenz Company, Inc. $950,000 Allentown Industrial

3365 High Point Blvd Lehigh Valley Props Assocs LLC Polaris Bio Investors $900,000 Hanover (NC) Land

3434 Hamilton Blvd 3434 Hamilton LLC Hamilton Prof Center Assocs $815,000 South Whitehall Office

Source: Lehigh and Northampton County Real Estate Tax Records, LVEDC Research

Q4 2015 / Q1 2016 COMMERCIAL REAL ESTATE TRANSACTIONSTRANSACTIONS OVER $800,000

1655 Valley Center Pky $4,725,0002460 Brodhead Rd $37,600,000

7COMMERCIAL REAL ESTATE REPORT • Q4 2015 / Q1 2016

Q4 2015 / Q1 2016 COMMERCIAL REAL ESTATE TRANSACTIONS

ECONOMIC CONDITIONS

4.3%

1.7%

4.7%5.0%

15.0%

4.5%6.2%

19.2%

10.3%

11.2%

12.4%

5.4%Industry Name

Education

Financial Activities

Health Care and Social Asistance

Information

Leisure and Hospitality

Manufacturing

Mining, Logging, and Construction

Other Services

Professional and Business Services

Retail Trade

Transportation and Utilities

Wholesale Trade

The health care industry remains the Lehigh Valley’s top employer, making up 19.2% of total employment within the region.

The Lehigh Valley’s unemployment rate is 4.8% as of February 2016, down from 5.5% in June 2015, and from 6.2% in 2014. The decline in the region’s unemployment rate follows largely the same pattern as the national rate.

EMPLOYMENT BY INDUSTRY

2010 2011 2012 2013 2014 2015 2016

Lehigh Valley Metro Pennsylvania

0%

0.5%

1.0%

1.5%

0.052%

0.170%

1.808%

1.310%

0.379%

0.855%

1.496%

1.352% 1.275%

0.947%0.939%

0.933%

0.286%

0.452%

2010 2011 2012 2013 2014 2015 2016

6.0%

8.0%

4.5%

4.8%

9.5%

Total nonfarm, Seasonally-adjusted figures. (March 2016 Release)Source: BLS & PA Center for Workforce Information & Analysis (CWIA)

Source: BLS & PA Center for Workforce Information & Analysis (CWIA)

LABOR MARKET JOB GROWTH UNEMPLOYMENT RATE

“The economic conditions of the Lehigh Valley are strong. We’re putting out more economic output in manufacturing than most other major metropolitan areas, our e-commerce market continues to grow, and for all intents and purposes the region is at full employment.”

- Don Cunningham, President & CEO, LVEDC

Lehigh Valley MetroSource: BLS & PA Center for Workforce Information & Analysis (CWIA)

2158 Avenue C, Suite 200 Bethlehem, PA 18017Phone: 610-266-6775 • Fax: 610-266-7623

www.lehighvalley.org

Our MissionThe mission of the Lehigh Valley Economic Development Corporation is to market the economic assets of the Lehigh Valley and to serve as a regional shared services and resource center to help businesses to come,grow and start here.

Our VisionOur vision is of a Lehigh Valley with a diverse economic base in our cities and counties that enable businesses to come here, start here and flourish here in order to create jobs and opportunities for all of our residents.

Our Priorities• Marketing Economic Assets• Coordinating a Prepared Workforce• Focusing on City and Urban Development• Serving as a Shared Services Center• Providing Access to Capital• Building our Resources and Engaging

Stakeholders

Lehigh ValleyCome here. Grow here. Start here.

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ic Developm

ent Corporation. All R

ights Reserved. 04.16

LVEDC

Annual Report designed by M

ichelle Chrin..