Market Watch

Trends and Activity Impacting the CRE Market in the Tri-State Area

[Eastern Pennsylvania, Southern New Jersey, and Delaware]

Industrial Market

The industrial market balance is shifting to a landlord’s market in the tri-state region, with rent growth exceeding pre-recessionary levels. Landlords are requiring longer lease terms, reduced concessions, and higher rental increases. These effects have spread beyond the core institutional submarkets of the Lehigh Valley and Central PA. Sustained optimism led to an increase in new construction, with 5.7 MSF delivered in 2015 and another 13.7 MSF underway – of which 68% is speculative. Rent growth should level off due to increased supply, though the market remains vibrant with new and existing tenant requirements.

Under Construction
Under Construction

Colliers Closed Deals & Recent Assignments

  • Leased – Colony Realty Partners with Essendant – 558,704 SF in Oaks, PA
  • Sold – Dermody Properties – 43 acre parcel in Lebanon County, PA
  • Leased – Staples with Benson Industries 211,000 SF in Lebanon, PA
  • New Listing – Equus – 1.1 MSF site: I-81 Commerce Center in Shippensburg, PA

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Office Market

While the office market in the tri-state region was the last to the recovery dance, it has taken a shift from a tenant to a landlord market, mimicking the industrial and retail sectors. This is especially true in Class A buildings in both the CBD and suburban markets as tenant flight to quality has driven up rates and lowered vacancy for the premium buildings. Look for this trend to continue while owners of Class B buildings debate whether to improve their product and join the higher rent parade or face rent stagnation and limited absorption. Regional REITS have shed suburban inventory and shifted their focus to the city.

REIT Owned Inventory
REIT Owned Inventory

Colliers Closed Deals & Recent Assignments

  • New Listing – Brookwood Financial Partners – 900,000 SF PA suburban portfolio
  • New Listing – Keystone Property Group The Curtis – 885,786 SF historic landmark building in Philadelphia CBD
  • New Listing – Brewers Hill Development – Nine building mixed-use redevelopment of former Neuweiler Brewery in Allentown, PA

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Retail Market

The retail market in the tri-state area is off to a strong start in 2016. Single tenant investment sales are at an all-time high and cap rates are remaining compressed. On the leasing side, off-price/value chains continue to be dominant players for shopping centers along with new concepts such as trampoline parks and rock climbing gyms. Shopping center/mall sales will continue trading at an aggressive pace as investors look to place money and owners continue to sell as they shift their property type focus Look for a dynamic 2016 in the retail market.

Shopping Center Tenancy
Shopping Center Tenancy

Colliers Closed Deals & Recent Assignments

  • Leased – Hand & Stone – 30 deals valued at $16M in Tri-state region
  • Sold – Willow Grove Thompson Lexus dealership – 10 acre parcel – $10M in Willow Grove, PA
  • Sale/Leaseback – Luxury import dealership portfolio in Philadelphia – $20M
  • New Listing – Palmer Town Center – 153,085 SF in Easton, PA

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Capital Markets

Low interest rates led to high transactional volume across the country in 2015. Banks, life insurance company lenders, Commercial Mortgage Backed Securities (CMBS), and Agencies (Fannie Mae, Freddie Mac, and HUD) were in high gear throughout the year. CMBS saw volatility which is expected to continue into 2016. This, coupled with future economic risk to CMBS lenders, will likely continue to impact production. The interest rate indexes are expected to remain low with the 10-year Treasury Index at sub 2% in early 2016. Short term rates may continue to rise slowly.

Commercial Mortgage Maturities

Colliers Closed Deals & Recent Assignments

  • Arranged – $24 million acquisition and redevelopment loan – 298 multifamily units – former West Philadelphia High School in Philadelphia, PA
  • Arranged – $28.1 million in debt for Campus Heights, a 111 unit, 444 bed student housing complex – Penn State’s Harrisburg campus in Harrisburg, PA

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Investment Sales

Investment sales volume in the tri-state region increased in nearly all asset classes last year. 2016 is starting off strong amid uncertain headwinds of economic and political unrest at home and abroad. Bulk portfolio sales and entity-level transactions are driving large scale ownership changes in the region’s inventory. Global and domestic capital sources are abundant and aggressive. The most coveted properties are CBD and medical office, e-commerce distribution facilities, Single Tenant Net Leased retail, apartments and self storage. Look for medical office to have a breakout year.

Single Tenant Net Leased Warehouse

Colliers Closed Deals & Recent Assignments

  • Sold – Single tenant net leased medical $155/SF; 24,500 SF in Trevose, PA
  • Sold – Multi-tenant industrial – 272,000 SF in Southern NJ – $12.6M
  • New Listing – Medical office – 50,000 SF in King of Prussia, PA – $7.4M

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Property Management

Energy efficiency trends are the key drivers in commercial real estate across all property types in the tri-state region. Lighting upgrades — both internal and external — pushed along by PECO rebates of 15-20%, have helped with the upfront costs. ROI in electricity savings is typically achieved in 12-15 months. Programming HVAC equipment to shed loads during peak times, while maintaining a comfort level for tenants, is another cost-saving measure that reduces energy consumption and wear and tear on mechanical equipment, hitting the bottom line with overall expense reductions.

Snow Removal Costs

Colliers Closed Deals & Recent Assignments

  • New Assignment – Sanofi U. S. headquarters 1 MSF – 50+ buildings in Swiftwater, PA
  • Renewal – Station Park – 425,000 SF mixed use in Hatboro, PA
  • New Assignment – Childrens Hospital of Philadelphia/City of Philadelphia – 95,000 SF new construction (medical, office, library, recreation center) in Philadelphia, PA

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