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Lehigh Valley’s Commercial Real Estate Market Looking Strong

By Angela Bristow

The Lehigh Valley had a strong first half of the year in comparison with other regional commercial real estate markets.

“You may hear national reports that are doom and gloom, but here in the Valley we have a pretty strong market,” said Derek Zerfass, vice president of the Retail Division for Colliers International in Allentown.

“We’re experiencing more retail development up here than in our other satellite office areas. I think it’s for two reasons. One, there are lots of retailers that have yet to come into the Valley, like Costco. The other reason is that the retailers that are here are still expanding in this market. We have a lot of expanding suburbs that are still growing.”

Other commercial real estate firms agree.

“The recovery is clawing its way back … tenants are backfilling the spaces that became vacant during the recession,” said James Balliet, president of The James Balliet Commercial Group, Keller Williams in Allentown.

“Even through the recession, this general region, the Philadelphia region, held up very well against the national averages that I’ve seen. What I’m seeing are vacancy rates going down and rental rates are going up incrementally. We’re not back to the rental rates we saw five years ago by any stretch.”

According to research reports prepared by Colliers International, the Lehigh Valley has only a 5 percent total vacancy rate in retail. Most retailers and developers will wait for an area to experience residential development before considering putting a store or shopping center there. A prime example is the Hamilton Crossings in Lower Macungie Township.

“Forks Township is another example of that. There’s been tremendous residential growth there,” said Zerfass.

Other townships, such as Whitehall and Bethlehem, are also experiencing growth.

Overall, Colliers International predicts that the vacancy rates will continue to decrease, barring any more closings of big box stores.

Zerfass says there’s a demand for every property type,

“A lot of owner-occupiers will look to buy, but many retailers look for the latest and greatest space to rent,” he said.

The industrial vacancy rate in the Lehigh Valley is 8.2 percent, according to Colliers International’s report. There is some activity in the industrial arena in areas such as Hellertown, Bethlehem, and Lower and Upper Macungie townships.

Due to a modest employment growth in the Lehigh Valley, Colliers International is hopeful that there may be an increased demand for office space in the coming months. The Valley’s total vacancy rate for office space is 10.4 percent, as reported by Colliers International.

“I think there are a lot of office buildings throughout the Valley,” said Zerfass.

The lower interest rates that have strongly affected the residential market are having more modest effects on the commercial market.

Zerfass said that he is seeing an increase in investment sales, and they continue to be on the rise, because interest rates are so low. But, he said that lower interest rates have not caused a significant number of business owners to go from leasing to buying or buying to leasing.

Whether a business leases or buys, he believes, depends more on the company’s business model.

“New construction pretty much dried up over the last few years. It remains relatively flat,” said Balliet.

Regardless of the type of property a business is considering buying or leasing, it is always recommended that a tax accountant is consulted for advice specific to each situation.

William D. Jacobs, who operates a Bethlehem-based accounting firm, said there are five tax points that can make purchasing commercial property more beneficial than leasing.

“Take into consideration that you will own it,” he said. “Secondly, you can deduct the interest, the depreciation, your real estate taxes, and take an investment credit on your taxes.

“If you lease, you can take the cost of the lease off of your taxes, but not as much as if you buy. Generally, you can take off 95 percent of the lease amount.”

As in all aspects of the new economy, commercial real estate has its own unique challenges.

Balliet said that despite the lower interest rates, it remains more of a challenge to obtain a commercial loan than a residential loan. Zerfass said the biggest surprise to most people is that it is tougher to find commercial property than they think.

Original Article