E-commerce, storage expected to drive Lehigh Valley’s post-pandemic commercial real estate

The greater Lehigh Valley region is well positioned for the future of commercial real estate according to a report by CBRE looking at the Northeast U.S. market.

Vince Ranalli, executive vice president for CBRE said in the wake of the COVID-19 and the supply chain problems that plagued many industries, companies are looking to onshore their goods so that they are closer to the consumer.

“They want to be prepared. They can’t get caught off guard again,” Ranalli said.

He said the unavailability of items ranging from toilet paper to hand sanitizer and even personal protection equipment for health care workers showed flaws in the supply chain. The situation has created a demand in the light industrial sector along the I-78/1-81 corridor.

“This supply chain wasn’t meant for everyone to be in their home,” Ranalli said. “Going forward, no one is going to be caught with their pants down again. They’ll have toilet paper and paper towels and hand sanitizer.”

According to the report, so far this year, third party logistic centers comprised approximately 46% of leasing activity in the corridor, while e-commerce accounted for 27%.

Ranalli said companies are looking to quickly ramp up their e-commerce and distribution capabilities in the region with the Greater Lehigh Valley developing as a significant inland hub.

“We’re one of the first stops for onshoring,” he said.

In metro areas and port cities, like Philadelphia, there is virtually no space available and that is bringing attention to the region.

“Landlords who have existing buildings or who are delivering soon have the best opportunity to land these tenants,” he said.

Joe Gibson, CBRE’s assistant director of research for Pennsylvania, said that while bricks and mortar retail and restaurants will definitely be negatively impacted in the coming months, any company that can capitalize on e-commerce may be shifting from storefronts to light industrial settings where they can better deliver goods direct to consumer.

Industries that serve those transitioning to an emphasis on e-commerce are also looking for space along the corridor. Businesses are using substantially more corrugated boxes to deliver goods, box manufacturers are looking for new locations.

CRBE is also seeing activity form food packaging companies, bottle makers, pet food suppliers, and anything in the pharmaceutical packaging industry. Even grocery stores are looking for more regional distribution sites and cold storage facilities are in great demand right now.

“People are becoming more comfortable buying their food over a computer,” Gibson said. “In e-commerce, grocery stores were really the last to fall into the fold.”

Gibson said the consumer demand for grocery delivery because of safety concerns during the pandemic has dramatically sped up what was already expected to be a growing segment of the grocery industry.

CRBE recently spoke to the CEO of a major regional grocery chain who said that the COVID-19 pandemic has sped up the company’s grocery delivery business plans by about five years, Ranalli said.

With the transportation infrastructure in place for a growing e-commerce industry, Ranalli said the region is ready for the growth. He pointed to the Fed-Ex ground hub near the Lehigh Valley International Airport and the UPS center off of Route 33 as examples of major companies investing in the transportation and logistics capabilities of the area.

“These parcel companies have spent tons of money setting up in the area,” he said.

Overall the report concluded that a strong infrastructure means a bright future for commercial real estate in the region.

“Looking forward, e-commerce will continue to be the biggest catalyst for both demand and innovation in industrial real estate over the next cycle. Increasing demand for goods bought online, especially food, will fuel the need for modern distribution facilities at a pace much higher than the previous cycle.”