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Real Estate Journal — Mid-Year Review — June 22 - July 12, 2018 — 3C
M id A tlantic
G reater L ehigh V alley B roker
n spite of all the clamor being expelled fromWash- ington predictions for U.S. By Jay Haines, NAI Summit Gaining Steam or Overheating? A National & Regional Outlook of Q1 - Q2 I
commodity type goods push demand for warehouse and distribution centers close to urban metros and populated markets. Construction both nationally and regionally will begin to close the demand and absorption gap; but record low vacancy and climbing rents will be the standard. The Lehigh Valley market has brought 1.1 million s/f of deliveries online thus far with another 3.6 mil- lion s/f under construction. Regional vacancy rates are running at just over 6%. Another strong segment is multifamily construction. Na- tionally 258,000 units are ex-
pected but recent reporting has construction labor issues slow- ing those deliveries. 2017 saw a total of 284,000 units come online. Many investment port- folios are dedicating as much as 60% to the multifamily market seeing strong fundamentals with lower risk. The millen- nial preference for this living style pushes all the indicators toward continued interest in investment. Regionally new site construction and adaptive reuse of urban core locations is adding significantly to existing available unit totals. The trend of office occupi- ers shrinking their real estate
footprints continues. A focus on greater efficiency and cost controls has leached its way even into the historically ma- jor Class A users, such as, law firms and financial services companies. The tech sector will continue to lead filling vacancy nationally averaging nearly 20% of leasing activity. In the Lehigh Valley the bulk of new office space added was medical related. Regional vacancy is running just below 8% slightly below the national average. Though base rent rates overall are somewhat suppressed; es- pecially for second generation space and older sites lacking
accessible amenities. Across retail segments the ever evolving relationship be- tween landlords and retailers has continued into 2018 with mid-range retailers seeking new methods to limit loss to lower priced goods distributors driven by the American con- sumer’s appetite for off price discount purchases. Insulated from this exposure are grocery and garden supply chains which forecast solid growth in the South and West where de- mand outpaces supply. Moody’s reports the number of retail bankruptcies is projected to continued on page 14C
economic in- dicators have remained sta- ble from 2017 into the first two quarters of 2018. Mod- erate growth coupled with near full em-
Jay Haines
ployment foreshadow similar patterns and results going forward. The housing market fundamentals are healthy and multi-family development are front and center for many investor portfolios. Private con- sumption remains consistently positive with most analytics showing evidence of sound growth. Currently, leading indicators of industrial produc- tion and distribution point to continued acceleration match- ing if not surpassing the past four years. The labor market steadily is adding jobs though wages lag and have held infla- tionary tendencies in check. However, several factors could alter this path for better or worse and directly impact future stability in the national commercial real estate market. The recent Tax Reform legisla- tion, proposed infrastructure improvement programs and capital spending all can have both immediate and lasting ef- fects depending on how they are structured or the ways funding is spent. Capital spending on assets will directly correlate to a rise in productivity; while a well-crafted infrastructure plan would spur employment and enhance business oppor- tunities on many levels. But, lurking in the wings are the is- sues of trade and tariff policies, such as, NAFTA, TPP and the Korean Free Trade Agreement. Economists purport that immi- gration is a necessity to support a near zero growth labor force. In the face of these issues cur- rent consumer and corporate optimism seems to signal the U.S. economy and with it the commercial real estate market moving toward a moderate to robust Q3 & Q4 of 2018. How these factors may manifest themselves in the commercial real estate market sectors will be explored. As industry continues its ride on one the nation’s longest economic expansions optimism for 2018’s performance remains red-hot. The demand for online
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