MARKET HIGHLIGHT, AUGUST 2007
NORTHEAST PENNSYLVANIA MARKET HIGHLIGHTS
Northeast Pennsylvania Retail Market
As residential prices continue to rise in New York and New Jersey, neighboring northeast Pennsylvania is beginning to look more and more attractive to metropolitan residents. Today, residents are moving to the area to take advantage of affordable home prices, a lower cost of living and all that the great outdoors has to offer. On the heels of this residential migration is an influx of retail development.
The majority of the retail development in this growing market is the repositioning of existing retail and infill development where there are gaps between the markets. The Shoppes at Montage, northeastern Pennsylvania’s first lifestyle center, opened this past spring and brought with it several new retailers to the area. Developed by Jeffrey R. Anderson Real Estate, the 316,000-square-foot center includes approximately 70 retailers including newcomers such as J. Jill, Christmas Tree Shops, Jos. A Bank and several specialty restaurants. The new center was also a big draw for staple regional mall tenants such as Victoria’s Secret and Gap. Located in the Glenmaura area right off of Interstate 81 between Scranton and Wilkes-Barre on Davis Street/Montage Mountain Road, the new lifestyle center will conveniently serve the entire northeast Pennsylvania market.
The area of Glenmaura is anticipated to be the next booming commercial real estate market in northeast Pennsylvania. In addition to the Shoppes at Montage, there is a large 18-screen cinema, a major corporate office park with Class A office buildings, a growing residential component, as well as a plethora of recreational activities ranging from the Montage Ski Resort, the Montage Performing Arts Center, an outdoor concert amphitheatre to a country club with a golf course. Another factor that will affect the growth in the area is the local AAA baseball franchise, which recently became an affiliate of the New York Yankees. In addition to being a tourist attraction, the owner of the franchise, Mandalay Sports, intends to develop the area surrounding the stadium with retail and other commercial development.
The Poconos is another growing area and a big draw for the northeastern Pennsylvania market. Heading east toward the Poconos, the Route 611 corridor is filling up with big-box development to the point that it has begun to put a strain on traffic. This new wave of retail development is being built to meet the demands of the growing population in the Poconos region. No longer primarily a second home community, a mix of residents, ranging from retiring baby boomers to young couples looking to start families and businesses, are moving to this idyllic area. Another factor affecting the growth of the Poconos is the new Mount Airy Casino that is slated to open this fall. The new gaming development promises to attract more tourists as well as residents with the promise of new jobs — again catalysts for more retail development.
Currently, retail vacancy rates are sitting at approximately 10 percent with rental rates ranging from $15 per square foot to $30 per square foot for mall rentals. However, keep your eye on this market because things are only going to get better.
— John T. Cognetti, SIOR, CCIM, is the president of Hinerfeld Commercial Real Estate.
Pocono Mountains Investment Market
The Pocono Mountains of northeastern Pennsylvania, including Pike, Monroe, Wayne and Carbon counties, are in an area of very positive transition in both the residential and commercial real estate market. For instance, Pike and Wayne counties happen to be two of the fastest growing counties in the Northeastern United States, and to a great extent, this is because they have become bedroom communities for the Metropolitan New York and the New Jersey Metro region.
In spite of the soft real estate market in 2006, and so far in 2007, the market will, without a doubt, continue to grow and grow quickly. The Poconos region offers excellent schools, abundant outdoor opportunities that include hundreds of thousands of acres of state and federal land for outdoor enjoyment along with great ski areas, golf courses, performing arts centers, and numerous music festivals and film festivals. It is an ideal place for residents in New York and New Jersey that are seeking an alternative residential market.
The tremendous growth in the housing market from 2000 to 2006 has created a very strong demand for additional retail development throughout the region. Numerous big-box and middle-size box shopping facilities opened in 2006 and 2007 with more planned centers in the approval process.
In addition, the Wall Street West initiative’s installation of fiber optics is underway in the Pocono Mountain region. Monroe County is approximately 1 year to 18 months away from having its first tenants from the financial world of the Big Apple arriving in the Poconos.
With approximately 30 million potential guests living within a 2-hour drive from the Pocono Mountain region and the new branding of the Poconos region, the resort industry is experiencing some exciting growth and activity. Sky Top Lodge and Woodloch Pines, two of the older Poconos Four Season resorts, are continuing to have great years with high occupancies rates and along with their continued success with Great Wolf Lodge, a new entrance into the market.
The biggest bonus to the hospitality industry will be the opening in mid-October of the Mount Airy Casino and Resort. The highly anticipated new facility will add a new dimension to resort hospitality in the Pocono Mountains and gives area resorts, hotels and hospitality facilities access to an important gaming amenity.
On the horizon are other major hotel and timeshare projects that are focused on the Pocono Mountain region. So, all and all, whether it is residential, retail, financial related opportunities or hospitality, the Pocono Mountains are moving in an extremely positive direction.
— Davis R. Chant is the chairman of Chant Realtors in Milford, Pennsylvania.
Northeast Pennsylvania Industrial Market
The northeast Pennsylvania industrial market has more than doubled in size the last 7 years. As of early June, there was more than 6.3 million square feet of development underway with the majority slated for a late 2007 delivery. Encouraged by sustained demand, large multi-market developers, such as Higgins Development Partners, First Industrial, Moran, Equilibrium Equities, ClayCo and Mericle, all have recently delivered speculative projects in the area or have projects slated for delivery in the next 6 months.
With significant development projects underway for the distribution operations of household names such as Coca-Cola, PepsiCo, Fed-Ex, Lowe’s, Sears and Johnson & Johnson, all signs point to the evolution of the region’s industrial market from a historical linkage to manufacturing and mining to one increasingly more tied to logistics and distribution.
Notable projects underway or recently completed include Higgins Development Partner’s 500,000-square-foot build-to-suit for PepsiCo in Mountain Top. Additionally, the firm recently delivered a speculative 400,260-square-foot distribution facility in the Humboldt Industrial Park West in Hazleton and has another fully approved site in the park that can accommodate 455,000 square feet.
The supply and cost advantages of the region’s labor pool and a comprehensive and aggressive economic development strategy have been vital to the submarket’s attractiveness. The State of Pennsylvania, through its Keystone Opportunity Zone programs, has been willing to trade capital upfront for promises of job growth over the long term, making the submarket one of the most incentivized market areas along the Northeastern corridor. At the local level, municipalities have displayed a genuine commitment to creating a relatively developer friendly environment, expediting the approval process thereby compressing development timelines. With short drive times to the New England markets and immediate access to I-80, I-81 and I-78 corridors, the pathways to the Mid-Atlantic markets, the region has emerged as an increasingly attractive alternative for distribution-related end users in the Mid-Atlantic.
— Steve Bonge, senior vice president; Tim Brogan, senior vice president; and Pat McBride, vice president of Grubb & Ellis all contributed to this report.
Northeast Pennsylvania Office Market
Northeast Pennsylvania developers are hoping a $15 million grant for workforce development and the construction of new fiber lines will heat up a lukewarm office market.
“Wall Street West” is a nine-county effort launched after several federal agencies, including the Securities and Exchange Commission, drafted an Interagency Paper after September 11, 2001. The Paper encouraged New York City financial services companies to relocate part of their operations into areas with different labor markets, power grids, watersheds and telecommunication systems. Since the nine counties of northeast Pennsylvania are just 70 to 150 miles from Manhattan, yet served by completely different utility systems, office developers are hopeful they will be able to lure New York City firms here.
The effort is being aided by a $15 million Workforce Investment in Regional Economic Development (WIRED) grant. The grant was awarded by the U.S. Department of Labor to help residents master the skills needed to work in financial services. The Pennsylvania Department of Labor and Industry and Ben Franklin Technology Partners of Northeastern Pennsylvania are administering the grant and coordinating a partnership of economic development organizations, educational institutions, workforce investment boards and private employers. The nine counties include the metro areas of Scranton/Wilkes-Barre/Hazleton, the Poconos, Allentown/Bethlehem/Easton and Greater Reading.
The effort has been aided by the recent announcement that the Commonwealth of Pennsylvania has selected telecommunications firm Level 3 to build new fiber lines from New York City to northeast Pennsylvania. The Commonwealth will provide significant grant dollars, which Level 3 will combine with its own equity, to build the new lines. Construction is expected to take 18 months.
Although office activity has been sluggish in the region, the market has not been overbuilt so vacancies have remained fairly modest. In Scranton/Wilkes-Barre, there are only six buildings with at least 20,000 square feet of available Class A space and just 13 with that amount of Class A or B space. Rates for Class A space hover around $20 per square foot gross while Class B space can be leased for as low as $15 per square foot gross. Hot office locations include Montage Mountain near Scranton, the Downtowns of Scranton and Wilkes-Barre, East Mountain Corporate Center near Wilkes-Barre, CAN DO Corporate Center near Hazleton and CenterPoint Commerce and Trade Park , a new multi-use park at Exit 175 of I-81 in Pittston.
— Bob Besecker is the vice president, senior director of leasing at Mericle Commercial Real Estate Services/TCN Worldwide in Wilkes-Barre, Pennsylvania.
Northeast Pennsylvania Investment Market
Northeast Pennsylvania is currently considered a strategic location for business by developers looking for their latest project sites. The region has seen an upsurge of speculative industrial development activity over the past few years. In the past, development was mainly done by the industrial development groups in the region and by local developers; however, today, developers from various parts of the country have Penn’s Northeast on their radar screen and are investing in the area.
In 2006, Verus Partners of Chicago completed construction on two speculative buildings in northeast Pennsylvania: a 248,640-square-foot warehouse/distribution center in Hanover Township near Wilkes-Barre, and a 165,000-square-foot flex building at the Jessup Small Business Center in the Valley View Business Park just outside of Scranton. Verus was so successful in leasing the Jessup building, which is now occupied to capacity, the company now has plans to build another 130,000-square-foot speculative building in the same park.
Equilibrium Equities, an investment and development company based in Conshohocken, Pennsylvania, just recently constructed a 240,000-square-foot speculative industrial building in Humboldt Industrial Park East, Hazleton. This is the company’s first speculative building in the region. In early 2007, Higgins Development Partners, headquartered in Chicago, completed construction of The Northeast Distribution Center, a 400,260-square-foot speculative building also located in the Humboldt Industrial Park. This was the developer’s first northeast Pennsylvania project.
Developers are not only investing in buildings, but also in business parks. Arcadia Properties of Bethlehem is developing the 600-acre Arcadia North Business Park near Stroudsburg and First Industrial Realty Trust of Chicago has nearly filled all of Covington Industrial Park, which sits just outside of Scranton.
Local developer, S.I.D.E. Corporation of Blakeslee, Pennsylvania, is developing the 292-acre New Ventures Commercial Park in Blakeslee, and Wilkes-Barre, Pa.-based Mericle Commercial Real Estate Services has begun development of a 377-acre business park, CenterPoint Commerce & Trade Park East in Pittston Township. Two speculative buildings are currently under construction.
Up until a few years ago, development of this proportion was not very prevalent in this region. However, as developers search for sites, it is obvious that northeast Pennsylvania is truly a strategic location for business.
— Penny Cannella is the president of Penn’s Northeast.
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