Wednesday, September 30, 2020

National Realty Lands Three Chains for Burlington, NJ, Shopping Center

Three national retail chains are coming to Liberty Square Center, a 380,383-square-foot shopping center in Burlington, New Jersey.

National Realty & Development Corp. said Ross Dress for Less, a women's apparel retailer, and Planet Fitness, a gym chain, are preparing to open at its Liberty Square Center at 2100 Mount Holly Road. Five Below officially opened for business at its 11,600-square foot space in June.

In total, the three national retailers will occupy 58,690 square feet at the shopping center.

Ross, which is scheduled to debut in October, will occupy 22,090 square feet. Planet Fitness has signed a lease for 25,000 square feet and is slated to open in the first quarter next year, according to National Realty, which is based in Purchase, New York.

The new tenants join the center’s existing anchors, Walmart Supercenter and a combination Marshalls-Home Goods, as well as a variety of other businesses including H&R Block, AutoZone and America’s Best Contacts and Eyeglasses.

“We are excited to add these three nationally recognized, highly successful brands to Liberty Square Center,” Nick Hrvatin, National Realty vice president of retail leasing, said in a statement. “Despite the significant challenges brought on by the current pandemic, we have been able to complete our renovation of this property and now have a great mix of retailers and service businesses. The brands located in Liberty Square Center are some of the most prominent names in retail and will allow the shopping center to thrive well into the future."

Liberty Square Center is located along Route 541, which connects Burlington with Mount Holly, New Jersey, and intersects with other major Garden State corridors including Interstate 295, Route 130 and the New Jersey Turnpike.

Data Center Real Estate Update (Video)

Tuesday, September 29, 2020

Office Sublease Space Increases by 21.8%

 by Les Shaver

As COVID-19 forced lockdowns across the country, the amount of vacant sublease increased in the first half of 2020.

Activity across 83 office markets and 92 industrial markets in North America and determined that sublease vacancy generally increased across the office market and minimally throughout the industrial market in the first half of the year.

They found that 15 million square feet of total office sublease space was added to the market in the first half of the year. The market experienced a 21.8% increase in total office sublease space, which accounts for 1.4% of total office inventory. As overall space increased, so did the vacancy rate. US sublease vacancy is 10.5% of total vacancy, which is an increase over the 9.2% posted in Q4 2019

The Western US saw the largest increase in sublease vacancy. Eighteen of the 22 (82%) markets in that region recorded an increase in sublease vacancy. In the Midwest, eight of ten (80.0%) markets saw increases. Vacancies increased in nine of 16 (56%) markets in the Northeast.

In 35 markets, office sublease space grew by more than 100,000 square feet. Tech markets were hit especially hard. San Francisco led the way with a 46% increase in vacant sublease space, while San Mateo County (the San Francisco Peninsula) was second at 33.8%. Manhattan placed third with a 26.3% increase, while tech hubs Vancouver (25.5%) and Austin (24.8%) rounded out the top five. Santa Clara (Silicon Valley) was sixth at 24.0%. 

On the industrial side, 12.5 million square feet of total sublease space was added to the North American industrial market. In the US, there was a 28.7% increase in total sublease space added to the market. Sublease space rose from 5.5% in Q4 2019 to 6.3% by the second half of 2020. 

The Western markets saw the largest number of markets reporting heightened sublease activity in the first half with 76.0% reporting increases. Only about one-third of the markets in the Northeast and Midwest reported industrial increases.

Only 18 industrial markets added 200,000 square feet or more of sublease space in the first half of 2020. Santa Clara County led the way with 31.7% of all vacancy sublease space.

Monday, September 28, 2020

Allentown, PA Unique Comeback Story Coming to a Head

 By Ben Atwood CoStar Analytics

There’s some high drama unfolding around the commercial property market in Allentown, Pennsylvania. What's at stake is cash, political capital and perhaps even the future of the commonwealth itself.

The protagonist of this comeback story is J.B. Reilly, a local resident and head of City Center Corp. His firm has been extraordinarily active building in Allentown over the past six years and his goal is an ambitious one: to turn Allentown into a 24/7 live-work-play city.

Such an aspiration would've seemed ludicrous a generation ago. But over the past decade, Reilly has spent over $200 million breathing life back into the city Billy Joel left for dead in the 1980s. The outsourcing and automation the Piano Man lamented upon are the antagonists of this tale, whose first act is a tragedy.

Allentown was built around manufacturing, so its steep decline over the last few decades created a host of fiscal and social problems. By the early 2000s, Pennsylvania's third-largest city had a poverty rate about 50% times higher than the state’s average, most major office-users had migrated to the suburbs and suburbanites warned outsiders away from downtown.

This narrative is common to nearly every major city in Pennsylvania, but it was particularly troubling in Allentown because its population was actually growing.

Low-income immigrants priced out of neighboring New York and New Jersey increasingly began chasing their American dream here, so local resources were being strained at a time when the tax-base was dwindling, a recipe for disaster.

Enter state Sen. Patrick Brown, who represents Lehigh County in Harrisburg. He kickstarted Act II of the Allentown saga in 2009, by pushing through one of the largest tax-incentive programs in Pennsylvania history, commencing a commercial real estate experiment that he says has no peer.

"Pennsylvania's small markets all have unique challenges," said Brown. "In the case of Allentown, there were no Class-A offices or apartments at all. People and businesses were staying away from the city. Our urban core was totally dead and we decided a uniquely aggressive approach was needed to quickly turn the tide."

Neighborhood Improvement Zone

In strongly condensed, thoroughly layman’s terms, Brown's legislation created a 128-acre "Neighborhood Improvement Zone" inside downtown Allentown. Within its boundaries, a substantial chunk of the state taxes paid by tenants renting in any of the new or refurbished properties can be redirected to pay off development loans if the tax amount owed exceeded what the state was collecting in 2009.

Roughly speaking, if the Neighborhood Improvement Zone generated $20 million in state tax revenue in 2009 and $40 million in 2019, $20 million would be given back to the developer to pay off debt. If the taxes owed exceed the amount due to both the state and developer, the excess is given back to the city for improvement projects.

The rules are a little more complicated than that, but the idea behind them is simply to reduce risk for developers in hopes of bringing tenants back downtown to rehabilitate a city that once helped build this country.

And it worked.

Over the past eight years, more than $1 billion has been invested into rebuilding the Neighborhood Improvement Zone, and Center City Allentown now has a luxury hotel, four four-star apartment complexes, four four-star offices and a 10,000-seat arena where the Philadelphia Flyers' American Hockey League affiliate Lehigh Valley Phantoms play.

None of that existed a decade ago and save for the hotel, these projects are nearly full now.

Many of the 6,000 employees working within them moved into the new multifamily, increasing foot traffic and allowing modern retail to mushroom up around Center City. In the past few years, two brewpubs, a coal-fire pizza kitchen, craft-beer bar and an art and yoga studio have opened near the Neighborhood Improvement Zone. Growth is extending outside its boundaries down Seventh Street, where a local foodie scene is developing around Central and South American cuisine.

The developments have been a boom for the city’s coffers, said Leonard Lightner, director of community and economic development in Allentown.

"From the city's perspective, the increase in taxes has been tremendous," Lightner said. "Compared to where we were in 2008, we are able to put a lot more money back into the community, into the schools.”

They’ve been a boom for Reilly, too. He built nearly all of the new projects and wants to build more soon.

"Frankly, we underestimated multifamily demand," he said. "And we've actually seen an acceleration since March."

The Final Challenge

The pandemic's arrival marks the onset of Act III: The Final Challenge. This story's climax is still being written, and frankly, it could go either way. If this year has taught us anything, it's that the world can change in the blink of an eye and no one can predict the future. The shutdown has altered the commercial real estate industry forever and it is entirely possible that the virus flattens Allentown’s redemption arc.

Office demand is limited in Lehigh, and this was a tight market before the shutdown. Properties are largely filled by local tenants with frugal tastes, and it is unknown how many will migrate into more expensive digs if they can adapt to remote work. Though things are holding up well through September, if Center City’s retail scene buckles under reduced seating capacity and fear of infection, then demand for apartments might soften and potential office-tenants might look elsewhere.

But there are numerous signs the virus could strengthen Allentown's momentum. Many, including Reilly, as well as CoStar Advisory Services, believe that a shift to suburban areas is plausible, particularly if companies widely adapt a hybrid remote/in-person office schedule and a hub-and-spoke location model.

If they do, Allentown effectively becomes a suburb of New York City, Northern New Jersey and Philadelphia. Both Reilly and Lightner claim they've been fielding more calls from potential tenants in those areas. Class A office space is about 40% cheaper in Lehigh, employees cost less and Pennsylvania’s taxes are lower too.

Outmigration applies to people, as well. National outlets are filled with stories of draining cities and interestingly, Lehigh Valley’s apartment market remains airtight, with overall vacancies hovering around 5%. City Center’s multifamily projects are more than 95% occupied and its 250-unit development on Linden Street is 70% pre-leased months before delivery.

That's pretty impressive for a secondary Pennsylvania city. It's too early to say Lehigh is growing because of the coronavirus pandemic, but the Morning Call has published multiple reports about the regional housing market's curious uptick in sales, and recent data shows that search activity for local multifamily units is slightly higher than the national average.

More tenants and residents would boost demand, but Reilly also believes locals will become more interested in new supply, which is built with COVID-19 in mind. CoStar Advisory Services also believes this to be a distinct possibility, as do several of the largest office developers in nearby Pittsburgh, who seem to announce a new project every week. Like Pittsburgh, Lehigh has a surplus of dated inventory that was aging into obsolescence before March. Allentown is far more frugal than the Steel City, but the Neighborhood Improvement Zone allows Reilly to keep rates affordable for small local tenants.

Time will tell, but it won't take much to keep the momentum going. Allentown is relatively small, and the bar for growth was fairly low. That goes for the rest of the state, too, where this same story has played out in places such as Reading, York, Erie, Johnstown, Scranton and Wilkes-Barre.

Sen. Brown said he’s keeping a very close eye on the Neighborhood Improvement Zone's progress.

"It's just one community now," he said. "But there's a lot of challenged cities across this state we hope to consider this plan for."

Thursday, September 24, 2020

Office Market Could Shed 145M Square Feet in the Next Two Years

 By Kelsi Maree Borland

The office market has been rocked by the pandemic, thanks to both widespread job loss and remote work mandates. Now, a new report captures the pandemic’s impact on the office market as well as looks at a potential path to recovery.

In the company’s baseline scenario, which has a 50% probability, the US office market will shed 145 million square feet of office space in the next two years, through the end of 2021. Job loss is the driving force behind the degeneration of the US office market, with the report anticipating a loss of 1.7 million jobs in 2020. This is an improvement compared to the 2.6 million jobs lost in the second quarter.

To put the impact of the pandemic in perspective, it was determined that office demand will decrease 30% more during the pandemic than it did during the 2008 Great Financial Crisis. Negative absorption will also outpace prior recessions. In the Great Financial Crisis, absorption totaled -2.1% of total inventory, and in the previous recession, the Dot Com Recession, total office absorption totaled -2.4% of total office inventory at the time. In the current pandemic, they estimates that office absorption will decrease 2.7% of total inventory. These numbers represent the market contraction through the total downturn.

The end of the road is hard to see. Today, re-opening companies and co-working and flex office providers are driving the leasing demand, but once the dust settles, there will be a clearer picture of permanent remote work policies and other hybrid models that could reduce the need for office space. As a result, the baseline scenario predicts that the US office vacancy rate will peak at 17.6% with negative absorption in both 2020 and 2021.

It is important to note that the pandemic didn’t initiate this trend. Office users have been shedding office space and moving to denser workplace models for years—and there office absorption rates were experiencing structural decline. The pandemic could reverse that downsizing trend now that employees need more space for social distancing. However, in place of densification, remote work policies will likely continue the trend of reduced needs for office space. As a result, the report postures that absorption rates will actually trend lower than they had under the densification trend.

This is the firm’s baseline outlook. The report also includes a downside and upside scenario. In the downside scenario, which has a 10% probability, job losses will continue into 2021 with a total of 2.9 million jobs lost through the downturn, and the recovery will begin in 2022. This scenario also assumes that Congress will not pass another round of relief, resulting in increased bankruptcies and creates a fiscal cliff. Overall, the downside scenario will see negative absorption of 291 million square feet nationally through the end of 2021 and office vacancy peaking at 20.2%. This would be the highest vacancy rate in 25 years.

On the upside—a scenario that also has a 10% probability—job losses will total only 940,000 square feet, and jobs will begin rebounding in 2021. In this scenario, job loss will recover in the third quarter of 2021. Like the baseline scenario, this scenario assumes that Congress will pass a $1.5 trillion relief package, and it also assumes a speedy resolution to the virus. With stronger and swifter job growth, the office market would only see 69 million square feet of negative net absorption through the end of 2021 with the national vacancy rate peaking at 15.6%.

Monday, September 21, 2020

PREIT Welcomes New Tenants Throughout its Portfolio

PREIT today highlighted new stores opening throughout its portfolio highlighted by an expanded, new prototype Apple store at Cherry Hill Mall. The store features Apple's latest store design elements, an outdoor seating area and exterior and interior accessibility. Cherry Hill Mall will also welcome new tenants, Jamba and Tempur-Pedic, in the fourth quarter.

Elsewhere, PREIT continues to welcome new brands across its portfolio and is looking forward to the upcoming additions of:

  • Sola Salon Studios, offering individual suites for full service salon offerings, opened at Plymouth Meeting Mall last week, joining Restore Cryotherapy and Red Rose Spa as part of its wellness cluster.
  • White House | Black Market and Windsor at Woodland Mall in the fourth quarter of 2020
  • Ardene opened its doors at Willow Grove Park this week, as its expansion across the region continues.
  • Blaze Pizza, a first-to-portfolio tenant, will open at Capital City Mall in the coming weeks.
  • Planet Fitness is set to open its 23,000 square foot facility at Moorestown Mall in the fourth quarter.
"As operations continue to re-build steam, PREIT is continuing to make strides in rent collections and building an even more diverse leasing pipeline," said Joseph F. Coradino, Chairman and CEO of PREIT. "We are thrilled to be welcoming new stores, that offer new experiences and create jobs, across our portfolio in time for the 2020 holiday season."

Real estate is seeing signs of a W-shaped recovery: National REIT Association Mid-Year Outlook (Video)

Friday, September 18, 2020

Velocity Venture Partners Adds Former Ford Motor Facility to Its 'Last-Mile' Portfolio

 By Charlie Dettbarn and Rachel Whaley CoStar Research

Velocity Venture Partners, a value-add industrial investment firm formed in 2016, has bolstered its Philadelphia-area portfolio with its latest purchase, a 677,000-square-foot distribution facility fronting I-476 in Eastern Montgomery County, Pennsylvania.

The real estate investment firm acquired 2750 Morris Road in Lansdale from a joint venture between Advance Realty Investors and The Davis Cos. The building sold for $33 million, or about $44 per square foot, according to CoStar data.

The Flynn Co. represented the buyer in the acquisition of the property and has been retained by Velocity to handle leasing and property management. Cushman & Wakefield represented the seller.

The distribution facility, which Velocity plans to renovate and rebrand as Velocity Park, was originally built in 1989 by Ford Motor Co. and housed the auto maker's electronics division until 2010. The building was about 60% leased at the time of the sale, providing a partially occupied property with leasing upside, according to Velocity. About 230,000 square feet of warehouse space and 50,000 square feet of office space is available.

Velocity's latest purchase continues its rapid growth throughout Pennsylvania and New Jersey, specifically Eastern Montgomery County. With its latest acquisition, Velocity's portfolio now totals about 3 million square feet.

Industrial remains as the Philadelphia region's healthiest commercial property type six months into the coronavirus pandemic, CoStar director of market analytics Adrian Ponsen notes in a recent market report. The industrial market still faces challenges but retailers' ongoing shift to e-commerce sales and faster delivery times has continued to drive industrial leasing as tenants store more of their inventory in local logistics centers as close to their customers as they can, Ponsen wrote.

Velocity said it has experienced "overwhelming success" with its last-mile industrial properties in Pennsylvania and New Jersey, and the company is confident that the property will "absorb tenants benefiting from the surge in e-commerce growth," Zach Moore, a founding partner at Velocity, said in a statement.

Calculating Commercial Real Estate Investment Returns (Video)

Thursday, September 17, 2020

SL Green CEO on the Future of Office Space

Real Estate Developer Bill Rudin on Returning to Work Amid the Pandemic (Video)

Fed chair Jerome Powell: Support for commercial real estate might need further action from Congress (Video)

Nerd Street Gamers to Open World's First Esports Industry Campus in Philadelphia

 by Clarice King Costar

Nerd Street Gamers, a national esports infrastructure company, is planning to open what it's calling the world's first esports industry campus at the historic Terminal Commerce Building in Center City Philadelphia.

Called The Block, the campus will serve as Nerd Street Gamers' new corporate headquarters and is expected to include global broadcast studios, dedicated training centers for professional teams and schools, educational space for community partners and, subject to zoning approval, a Localhost facility capable of hosting community, scholastic, amateur and pro-level events and programming.

Nerd Street Gamers operates esports training facilities called Localhosts where guests can pay hourly rates and compete in amateur esports tournaments. Other Localhost locations include Denver and Austin, Texas, with Los Angeles and other locations across the country opening in the near future.

The Block will be located in a roughly 40,000-square-foot space within the 11-story, 1.3 million-square-foot building at 401 N. Broad St. that's owned by Netrality, the operator of strategic, fiber dense data centers that facilitate the interconnection between major fiber networks enabling regional connectivity. After acquiring the Terminal Commerce Building in 2014, Netrality invested over $50 million in renovations for the building, making it one of the most fiber-dense, network-neutral facilities along the East Coast. The building's internet capabilities support a near-zero lag time for competitive gamers.

"Not only are we creating one of the industry’s largest gaming landmarks with The Block, but we’re also building a home for every member of Philadelphia’s gaming community and contributing a vital element to the redevelopment of North Broad Street," John Fazio, founder and CEO of Nerd Street Gamers, said in a statement. "With this esports campus, we're supporting the growth of the industry as a whole by increasing access to opportunities for gamers, public organizations, educational institutions, and the community at large."

Nerd Street Gamers plans to open The Block this winter unless circumstances change given the COVID-19 pandemic.

The Block is the latest example of Philadelphia rapidly becoming an esports hub in the United States. Fusion Arena, the Comcast Spectacor and The Cordish Cos.' $50 million next-generation esports and entertainment venue, is slated to open in the heart of the Philadelphia Sports Complex. The Block will help solidify Philadelphia's role as a destination for industry professionals and fans by offering practice facilities, broadcast studios and exhibition opportunities for professional teams visiting the arena.

Nerd Street Gamers is also planing to provide low-cost access to high quality equipment and education to the Philadelhipa community. The company will also be partnering with local organizations and educational institutions for their respective esports programs, including Temple University, Comcast NBCUniversal LIFT Labs, Team Altemus, Aim Lab and TechGirlz.

The Block comes on the heels of Nerd Street Gamers' commitment to open an additional 100 venues across the United States in Five Below stores, stadiums and college campuses over the next five years.

Tuesday, September 15, 2020

Ensemble Expands Life Sciences Footprint in Philadelphia

 By Ingrid Tunberg

Ensemble Real Estate Investments has purchased three life sciences facilities, comprising 366,803 square feet of space in Philadelphia’s Navy Yard.

The properties, located at 4701 and 4751 League Island Blvd. and 400 Rouse Blvd., are each occupied by WuXi Advanced Therapies Inc.

“Ensemble is proud to partner with WuXi to support their important work in developing advanced and life-sustaining therapies in the years to come,” states Mark Seltzer, SVP of development for Ensemble. “The Navy Yard’s proximity to the highway network and airport, along with its unique ability to accommodate large-format, low-rise buildings in an urban environment has made it incredibly attractive to WuXi and many other Life Sciences companies, positioning it as a critical component of our regional economy.”

With the recent acquisitions, Ensemble Real Estate Investments now owns a total of five life sciences properties within Navy Yard, totaling 550,000 square feet and $155 million in investments. The company’s additional Navy Yard properties include Adaptive Therapeutics’ US headquarters and the Iovance Biotherapeutics facility, which is currently under construction.

Each of the company’s Navy Yard life sciences buildings offer manufacturing, laboratory, research and development and office space to support the clinical development and initial commercialization of novel engineered immunotherapies, including gene and cell therapy.

Along with the facility assets, the California-based company has additionally invested in office and hospitality properties within the area; bringing the firm’s Navy Yard portfolio to total more than 1.1 million square feet, including four pad-ready development sites.

The real estate company has appointed two former Liberty Property Trust professionals to its team. Within their new roles, Brian Cohen and Mark Seltzer will lead Ensemble’s East Coast operations.

“Ensemble’s decades-long track record of successfully executing development projects across all asset classes and their ability to effectively raise capital, creates a platform well positioned to achieve an aggressive growth strategy in Philadelphia and the region.” says  Cohen. “These attributes, coupled with the team’s vast experience envisioning and creating exceptional projects will serve to further attract leading-edge companies throughout our portfolio.”

WuXi’s most recent advanced therapies testing facility, 400 Rouse Boulevard, offers 140,000 square feet of state-of-the-art space. As one of the largest LEED Gold life sciences buildings in Philadelphia, the property more than doubles the company’s testing capacity for gene and cell therapies and increases the company’s Navy Yard footprint to more than 400,000 square feet of lab and GMP space.

As one of the first companies to move to the Navy Yard in 2004, AppTec opened a 75,000-square-foot contract testing and manufacturing facility, prior to being acquired by WuXi PharmaTech in 2008. Since then, WuXi has expanded its presence within the Navy Yard in order to serve the growing demand for cell therapies.

Wednesday, September 9, 2020

South Jersey Leads Philadelphia Region in Multifamily Market Resilience to COVID-19

It’s not often the Garden State’s commercial property market flexes its muscles on the national stage. Enter 2020, the year when the only thing to expect is the unexpected.

The once-in-a-lifetime effects of the coronavirus are not only upending long-held investor assumptions on which markets are safest, they’re also unveiling resiliency in markets and properties that arguably deserved more investor attention in the first place.

In July, we highlighted how Philadelphia’s apartment sector is proving to be one of America’s healthiest markets in the face of the coronavirus with the lowest concessions rates nationally and asking rents now well above their pre-pandemic peak.

Diving deeper into the data reveals that South Jersey is leading the Philadelphia region’s charge in asking rent growth. Apartment rents here are up more than 3.5% year over year.

"We have done really well," said Caroline Adillon, president of Viking Residential, which owns more than 1,900 units worth of workforce housing properties, which is housing geared toward middle-income households, throughout the Philadelphia metropolitan area, most in either South Jersey or Lower Bucks County.

"Our occupancies have stayed above 95% at all three of our South Jersey properties since the pandemic started," Adillon said. "People don’t want to move today if they can avoid it, so our turnover is way down. This has drastically reduced our expenses and helped us tighten qualifying guidelines on the few units that are opening up."

The region’s resilience partly ties back to its lower levels of new apartment development heading into the pandemic.

Most recent apartment construction in the Philadelphia suburbs has been focused in western suburbs such as King of Prussia and Exton, leaving South Jersey apartment owners with fewer new properties to compete with.

There’s also been a groundswell in development of distribution centers along Interstate 295, by e-commerce retailers seeking to speed up their home deliveries.

South Jersey is a natural fit for these operations given its location squarely in the middle of the western hemisphere’s largest center of purchasing power, minutes from Philadelphia, but also right between New York City and the Greater Baltimore/Washington Area.

Since 2015, more than 27 million square feet worth of distribution centers have started construction in the four South Jersey counties of the Philadelphia metropolitan area. Even after coronavirus-related cuts, transportation and warehousing employment in these counties is still up by more than 33%, or 9,000 new jobs over the past five years.

The federal government’s enhanced $600 per week unemployment benefits have also played a key role in supporting South Jersey’s economy and apartment market, signaling risks if stimulus is further scaled back. But these benefits were cut to $400 per week at the end of July, and South Jersey apartment rents only continued to increase.

Meanwhile, there’s no end in site to the boom in distribution employment that has underpinned South Jersey’s job market. Target, Amazon, Premier Technology and Burlington Coat Factory are all set to open new distribution centers larger than 200,000 square feet in late 2020 and early 2021.

Industrial Vacancy Rates Stable in Northeast Through Q2 2020

By Pearl Wu

Vacancy rates in the northeast remained steady in the second quarter at 6.6 percent despite the ongoing coronavirus pandemic.

Leasing in the industrial sector decreased at the start of 2020 in comparison to last year, though leasing regained momentum in the second quarter as a result of demand from retailers, logistics providers and e-commerce firms.

Average rents for Class A facilities remain at peak levels in the northeast, particularly in The Meadlowlands in New Jersey and Lehigh Valley in Pennsylvania. The Class A vacancy rate remains highest in Pennsylvania, which increased to 12 percent in the fourth quarter in 2019, dipped to just over 10 percent in the first quarter of 2020 and increased slightly in the second quarter of 2020. New Jersey has seen its vacancy rate in Class A facilities drop steadily since 2018.

New construction and development has regained momentum in the second quarter with almost 38 million square feet of new development under construction in the second quarter. Numbers for pre-leasing of new development remain strong. Retail properties have also been converted to industrial use in New Jersey and Pennsylvania. The conversion of retail space into industrial properties is an ongoing trend propelled by the coronavirus pandemic, as shoppers reject traditional retail properties by avoiding in-store shopping, instead opting for online shopping. This opens the need for logistics centers and warehouses. Industrial properties had returned about five percent at the end of June, despite still trending down, and total office vacancy increased to 13 percent in the second quarter and businesses and office workers shifted their focus online.

Tuesday, September 8, 2020

Lehigh Valley's Apartment Market Is Strengthening

The apartment market in Pennsylvania's Lehigh Valley is strengthening during the pandemic.

Multifamily vacancies are at record lows, and close to 97% of the Lehigh’s inventory is leased. This is good news for a small market with modest population growth that saw over 1,000 apartment units deliver since 2018. The recent supply is over 90% occupied, and few of these projects are advertising concessions.

The market’s workforce housing, or housing geared toward middle-income households, is also faring well. Lehigh's mid-tier two- and three-star properties are faring even better. They post average vacancies of just 2%, and occupancies have climbed over the past 12 months.

Even more interesting is the rent growth.

At a time of great uncertainty for the apartment market, Lehigh's apartment landlords are doing quite well. Year-over-year gains are over 3%, which makes the area one of the nation’s top performers. Gains here are surpassing those seen in nearby cities such as Philadelphia and New York, which are struggling with some outmigration issues caused by the coronavirus.

It is possible that Lehigh is benefiting from this. The market offers relatively quick access into both cities, particularly Philadelphia. The restructuring of office and the likelihood of companies adapting hybrid remote/office employment in the coming years could be a great benefit to a market like Lehigh Valley.

The region’s location could also make it a prime destination for workforce housing. Lehigh is ideally situated at the crossroads of Interstates 78 and 476 and has become a shipping node. Developers have been extraordinarily busy in the past 10 years, adding millions of square feet of logistics space. These warehouses are creating thousands of jobs, which could pull in even more blue-collar workers now that retail has been so thoroughly disrupted.

While sales have slowed because of the pandemic, third quarter figures have already surpassed what the market saw in the second quarter. Though only a handful of properties have traded in the past three months, there were a pair of notable deals that did close in July. Laub Realty had one of the larger deals: The New York firm spent $6.25 million on the three-star, 30-unit Taylor Apartments.

Out-of-state money, tightening vacancies and stronger than average rent growth all are good signs for the local apartment market and Lehigh at large.

Friday, September 4, 2020

PREIT Calls Off Plan to Sell Five Shopping Malls

Pennsylvania Real Estate Investment Trust has terminated an agreement to sell five of its malls — a deal it mentioned earlier this year as one of its efforts to raise needed cash.

PREIT owns and operates a portfolio of enclosed malls and shopping centers that has been hit hard by recent retailer bankruptcies and shutdown orders to curb the COVID-19 pandemic. It was one of the first real estate investment trusts to acknowledge its survival may be in doubt.

In its first-quarter securities filing, the Philadelphia-based company said there is “substantial doubt about our ability to continue as a going concern,” citing its current financial condition, liquidity sources and financial obligations coming due over the next 12 months.

Also in that filing, PREIT disclosed in February it entered into an agreement for the sale-leaseback of five mall properties. The transaction was subject to completion of due diligence.

The outbreak of COVID-19 the following month pushed back due diligence efforts and reduced the availability of financing to complete the deal, PREIT said in a Securities and Exchange Commission filing this week. As a result, PREIT elected not to extend the due diligence period any longer and terminated the agreement.

The sale was expected to gross proceeds of $153.6 million in cash. It was structured as a 99-year lease with an option to repurchase. The agreement also provided for release of outlying land parcels for multifamily development.

The deal was a key component of asset sales PREIT arranged this year expecting to raise $313 million.

Geyser Holdings, based in the Detroit area, was identified in a PREIT federal filing this month as the buyer under the sale-leaseback agreement. Geyser did not respond to a request for comment.

The malls identified as having been under contract for sale were: Moorestown Mall in Moorestown, New Jersey; Jacksonville Mall in Jacksonville, North Carolina; Magnolia Mall in Florence, South Carolina; Valley Mall in Hagerstown, Maryland; and Capital City Mall in Camp Hill, Pennsylvania.

Can commercial real estate rebound after the coronavirus pandemic (Video)