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Tag: construction

Apartment rents and vacancy rates rising in Allentown

May rents in the Allentown metro area were higher than in April but still slightly less than a year ago, as they continue to settle from a pandemic high.

Vacancy is also rising, though it still isn’t close to pre-pandemic levels.

According to the latest national rent report from Apartment List, Allentown rents rose 2.6% last month. The median rent for a one-bedroom apartment was $1,158; for a two-bedroom unit, it was $1,507.

The overall median rent of $1,454 is 0.2% less than it was in May 2022 and 30.2% more than before the pandemic.

Nationally, Apartment List’s rent index grew 0.5% over the course of May. This is the fourth straight monthly increase in rent prices, the report said, but “rent growth is flattening out at a time of year when it’s normally picking up steam. Rent growth this year is coming in slower than average, and even though prices are trending up again, a combination of sluggish demand and increasing supply is keeping prices in check.”

Year-over-year rent growth is at 0.9%, its lowest level since March 2021. It’s well below the 2.8% pre-pandemic average rate from 2018 to 2019 and “could possibly even dip into slightly negative territory in the months ahead,” the report noted.

On the vacancy side, Apartment List’s national vacancy index has been climbing since bottoming out at 4.1% in October 2021, in the midst of COVID-19.

From last September through May, it rose an average of 21 basis points a month and is at 7% in the most recent rent report. That’s higher than the pre-pandemic vacancy rate average of 6.6% from 2018 to 2019.

In the Allentown metro area, the vacancy rate was 4.33% in May. That compares with a pandemic low of 1.64% in September 2021 and a pre-pandemic high of 6.67% in December 2019.

Apartment List predicts that the vacancy rate will continue to climb nationally.

New apartment construction is recovering from pandemic-related disruptions, the report said, and there are now more multifamily units under construction than at any point since 1970. “As this new inventory continues to hit the market over the course of the year, we are now entering a phase in which property owners are beginning to compete for renters to fill their units, a marked change from the prevailing conditions of the past two years, in which renters have been competing for a limited supply of available inventory.”

Paula Wolf is a freelance writer

Shapiro Administration looks to boost apprenticeships, construction trades

An additional round of grant funding to create more opportunities in Pennsylvania apprenticeships and construction trades was announced Monday by the Shapiro Administration. 

The additional $1 million round of grant funding was announced by the Pennsylvania Department of Labor & Industry (L&I). The funding is being made available to Pennsylvania registered apprenticeship programs to expand opportunities, promote diverse talent, and reach underrepresented populations withing the building and construction trades. 

Applications are due by 5 p.m. on April 26, 2023. 

L&I Acting Secretary Nancy Walker said her department is committed to serving the state’s workforce by creating more opportunities and pathways to success in apprenticeship programs. 

“Pennsylvania’s economic future depends on a well-educated and highly trained workforce,” Walker said in a statement. “These grants will open the doors of opportunity to more Pennsylvanians and grow our economy – a key priority of Governor Shapiro’s budget proposal.” 

Gov. Josh Shapiro’s budget proposes a $23.8 million investment in workforce training and apprenticeship programs and strengthening skills-building programs that lead to family-sustaining wages. As a workforce development strategy, registered apprenticeships have a track record of success in advancing workers’ careers but are behind in serving populations that are underrepresented. 

In 2022, women represented just 13% of the completed Registered Apprenticeships and 15% of new apprentices, according to the U.S. Department of Labor. Women comprised just 10.9% of the construction industry in 2022. 

L&I’s Apprenticeship and Training Office (ATO) was established in 2016 and is responsible for guiding and promoting the compliance and expansion of registered apprenticeship and pre-apprenticeship programs. The ATO supports 868 unduplicated program sponsors and 1,573 occupation-specific registered apprenticeship programs across Pennsylvania.

Commercial real estate market cooling, but still strong along I-78/I-81 Corridor

4730 Hanoverville Road is one of the available commercial properties in the I-78/I-81 Corridor. PHOTO/COURTESY CBRE
4730 Hanoverville Road is one of the available commercial properties in the I-78/I-81 Corridor. PHOTO/COURTESY CBRE –

After about two years of record setting growth, commercial real estate firm, CBRE is reporting that leasing activity slowed within the PA I-78/I-81 Corridor logistics market in 2022, posting as little as half of 2020’s total.  

Still, Sean Bleiler, executive vice president out of CBRE’s Allentown office, said the market remains healthy. 

“Overall, the commercial leasing market remains very strong. There is still a lot of corporate demand for both leasing and purchasing,” he said. 

While the overall number of businesses seeking space in the market was down compared to the two prior years, he said a lack of supply added to the slowdown in activity.  

New construction is down slightly, but again, he emphasized it wasn’t due to lack of demand. 

“Interest rates are really the only thing that is slowing down development,” he said. 

Bleiler said he expects higher interest rates will impact new construction over the next several quarters. 

“It’s just put the cost level to the point where it might not make sense to put the shovel in the ground right now.” 

For the past two consecutive quarters construction starts totaled under 2 million square feet. Bleiler said that is a level not seen since the second quarter of 2018. 

The report showed 27.5 million square feet of commercial space remained under construction at the end of 2022, only 24.0% of which was already pre-leased. 

Because of the speculative construction projects being completed without tenants, the vacancy rate ticked up slightly as construction completions outpaced net absorption. 

The average vacancy rate along the corridor is currently at 4.3%, up from its most recent low of 3.5% posted in the second quarter of 2022. 

Bleiler noted that the vacancy rate remains well below the 10-year average of 7%. 

And in some ways those vacant properties are good for real estate developers. 

“Tenants like options,” he said. “They don’t want only one or two options in their price range.” 

He said any building that is up right now is seeing activity and interest and he expects in the short-term demand will still outpace future supply. 

Interest in the region is still coming largely from transportation and logistics companies, particularly third-party logistics providers, but they’re also seeing strong interest from light industrial tenants, particularly food manufacturers. 

Because of the higher vacancy rate rents have slowed from the rapid increase they’ve been seeing in recent years. 

According to the report After rising an average of 5.7% quarter-over-quarter since the fourth quarter of 2019, Class A rent increases have slowed.  

While Bleiler said year-over-year growth remains strong at 6.3%. Only the Northeast Pennsylvania region managed to avoid a regression in its Class A rents with an average of $5.04 cents per square foot. However, that region’s rents still remain far below Central Pennsylvania at $6.03 per square foot and the Lehigh Valley at $7.68 per square foot. 

Currently, he said Central Pennsylvania is leading the region in growth. Over the past six months the market has grown at a much faster pace than the Lehigh Valley, which has less available space and higher rents. 

Overall, the report shows that demand is expected to persist in the short term, driving continued positive absorption while some vacancy growth in the form of new construction may provide some needed supply reserves to the market. 

Strategic financial management is critical for AEC firm success

Architectural, engineering and construction (AEC) firms are designing, planning, constructing and leading projects worth hundreds of millions of dollars. These firms provide professional services that impact the quality and success of those projects. There is a public misconception that these types of businesses are highly profitable, but that is not always true. Some AEC firms maintain a decent profit margin, while many others struggle financially. 

There are many reasons why AEC firms are not profitable enough, but one main reason is poor financial management. Strategic financial management is essential for any business to be successful and sustainable. Strategically managed finances can result in a great success story or in a fatal nightmare if finances are not controlled.  

Architects, engineers and construction professionals do not get much business education relative to running a business while working on their professional degrees. And that is one of the major challenges these professionals face in running their business. 

Slow paying clients are one major challenge in the AEC industry in today’s economy. The problem of not being paid on time is a very serious issue for small and large firms. The issue is exacerbated because it is occurring when AEC firms are having significant difficulty staffing up to meet demands of their existing and new clients.  

Strategic thinking is critical to determine what strategies need to be considered for financial profitability. Strategies are needed to diversify clients and professional services to ensure a stable flow of income for firm growth and pricing projects accordingly.  

Working capital is a problem that many people in business do not understand and AEC firms need much more focus and education to deal with it. Wikipedia defines working capital as current assets less current liabilities. If current assets are less than current liabilities, an entity has a working capital deficiency, also called a working capital deficit and negative working capital.  

Positive working capital is required so an AEC firm is able to continue its operations and also have sufficient funds to satisfy short-term debt and ongoing operational expenses. An AEC firm’s current assets typically include accounts receivable. However, in reality that is not true if clients take a year to pay their bills.  

AEC firms must have enough cash to keep meeting payroll and all other overhead expenses for the time it takes clients to pay their bills for work performed by their firms. AEC firms must stop tolerating slow-paying clients and acting as a bank to finance their clients’ businesses and projects.  

Strategies that AEC firms must incorporate into their planning include: pursuing specific vertical markets and project types that are “recession resilient;” strategic focus on “Go – No Go” decisions on clients and projects; considering diversified business relationships and developing new strategic partnerships with other firms.  

Strong financial management deploys tools to achieve success. Some of those tools include:  

A management strategy for the direction of the firm. A forward look at the next quarter and the rest of the fiscal year, the next year, the next 2-3 years are important to determine that direction. The firm needs to set aside time to review and reflect on current workload and backlog, prospects in the pipeline, capacity to handle increased workload, any new skills or services needed, project management models, existing and desired clients, market trends, overall goals for the firm and other factors anticipated to impact the AEC industry.  

Agility and adaptability are two key words for the future in the AEC world. The pandemic certainly highlighted the need for each of those attributes. A successful AEC firm must be able to adapt to changes in the industry, the economy, markets and unforeseen influences that will impact their business.  

Business development is another critical tool for success in AEC firms. A firm cannot simply rely on work coming to them unsolicited and without strong ongoing relationships. Business development is a full-time task and is a “contact sport” that requires time to build and enhance relationships, research markets and forecasts, identify and qualify opportunities and work with the team to secure contracts and keep in touch periodically with clients during current projects.  

Another very critical tool relates to developing strategic and realistic pricing of professional services. There are not many resources available to help guide a person in the development of professional fees. The truth is that development of these fees is a combination of an art and a science and this skill is developed over time.  

Developing options to acquire working capital is also an important tool. One option is to secure a line-of-credit. Credit lines have been used by businesses for years to meet working capital needs. This resource provides a flexible loan from a financial institution that defines a specific amount of money the firm can access as needed and repay either immediately or over time. Lines of credit are often used to cover the gaps in irregular monthly cash flow or to finance a special purchase where it may be difficult to ascertain the exact funds needed in advance.  

AEC firms are some of the most complicated businesses to manage. Success requires a strategic thinking high level person that understands both the design process and the financial management process to oversee financial performance.  

Some important action items needed for strategic financial management include: 

  • Price: Learn from past experience to determine how many hours were spent on similar projects. 
  • Monitor: Regularly monitor projects’ profitability. 
  • Forecast: Obtain accurate projections for the firm’s projects and regularly review them.  
  • Allocate: Allocate staff and resources according to projections.  
  • Process: Create financial processes to support financial management, including project management, billing, change orders, collection, etc. 
  • Focus: Do not micro-manage. Focus on what makes a difference and helps meet financial objectives. 

Closing with great advice from George Washington: “To contract new debts is not the way to pay old ones.” 

Financing announced for Berks Class A warehouse/distribution portfolio

An affiliate of Endurance Real Estate Group LLC announced the successful financing of Berks 61 and Berks 222, a recently stabilized three-building Class A portfolio of distribution centers in the Lehigh Valley West submarket.

A 270,000-square-foot Muhlenberg Township manufacturing facility completed in 2021, Berks 61 is leased to the largest bottle-to-bottle recycling plant in North America, a release said.

Berks 222 is a 327,704-square-foot, two-building logistics park in Reading leased to three credit tenants, including National Coatings & Supplies Inc.

“We are thrilled to secure financing on our Berks 61 and 222 portfolio and remain bullish on more development opportunities in the Greater Reading/Berks County market,” said Benjamin Cohen, president of Endurance.

“This financing, which is a continuation of our business plan that included the successful construction and lease up, allows for both a substantial return of capital while preserving the ability to remain flexible in our hold period for this investment into the future.”

The JLL Capital Markets team of Chad Orcutt, Ryan Ade and Blaine Fleming served as the financial adviser to Endurance for this debt financing, while Empower Annuity Insurance Company of America, a new lending relationship to Endurance, provided the $49 million interest-only financing.

Radnor-based Endurance Real Estate Group is a real estate owner/developer focused on income and value add industrial opportunities in the mid-Atlantic region. Since its formation in 2002, the company has acquired $1.4 billion of assets totaling 20.9 million square feet and sold 11.8 million square feet with a combined value of $1 billion. Endurance owns and operates a portfolio totaling over 5.1 million square feet and is developing 2.6 million-plus more square feet.

Paula Wolf is a freelance writer

Construction cost outlook for 2023 and beyond

The construction industry is very dynamic and produces various changes every year. Some changes are minor, while others are immense and have lasting effects on the entire industry. Construction cost increases are one of most visible and impactful changes being experienced during 2022. Construction costs are forecast to rise 14% this year, but increases are expected to drop significantly at the beginning of 2023. 

The price paid for goods and services on new nonresidential construction jumped 42% between March 2020 and March 2022, according to CBRE’s Construction Cost Index. That does not include labor costs, which have also increased substantially. Various steel products, plastic piping and wood costs have seen more price increases more than double since the pandemic.  

Annual increases are expected to return to historical averages between 2% and 4% in 2023 and 2024. There also is an expectation that overall cost inflation will begin to slow by the end of 2022, but material costs may remain volatile due to geopolitical risks including tariffs and sanctions. 

Supply chains are no longer predictable. The economy and the supply chain simply cannot handle a 30% growth rate that has occurred. Supply-chain disruptions hopefully will begin to ease in 2023, but ongoing global labor shortages will impede production and logistics. Many economic forecasters are anticipating a recession which will probably be milder than 2008-09 but worse than 2001. 

Construction Costs in 2023 – Up or Down? 

The demand for housing and non-residential building is increasing. The problem is that the production/supply cannot keep up with the demand and that is why construction costs have been steadily rising for years.  

 

There are many factors that contribute to rising construction costs. But one of the primary reasons why construction costs will not go down anytime soon is because of the rise in construction material costs. In addition, labor costs are rising as the number of skilled workers decreases. 

 

Construction Costs Expectations in 2023 

The cost of construction will keep on increasing. In addition to rising prices of materials and labor, the disruptions caused by the pandemic, rising fuel prices causing the logistical costs to be high and the Russia, Ukraine war and rising construction material prices played a role that is financially impacting the entire construction industry. 

 

 

 

Construction Costs increases – Any End In Sight?  

The Producer Price Index for final demand construction was up 4% in May compared to a year ago, according to data from the U.S. Bureau of Labor Statistics. This continues to point to a longer-term trend of rising construction costs. 

 

Several factors drive this trend, including an increase in the cost of materials and labor. But, a closer look at such trends reveals that the economies have also grown a lot. An increase in purchase power and growth in inflation result in increasing construction costs. Manufacturing, delivery, etc. are also increasing the overall budget.  

 

Continuous research and development also increase the prices of early stages of construction. It is important to understand that R & D is a one-time investment that can give positive results if the running cycle of a building can be managed properly. 

 

Material Costs Increase At Historic Rates  

Construction economists see double-digit increases in the cost of construction materials, and they expect those prices to continue to rise in the coming years. The reason for the increases is largely due to the Covid-19 pandemic. 

 

The pandemic has disrupted supply chains and caused a decrease in the production of construction materials. Simultaneously, there has been an increase in demand for those materials as the housing market boom continues. The result is that prices for construction materials continue to increase. 

 

Construction economists expect material costs to continue to increase in the coming years, although the rate of increase is expected to slow. They predict that the cost of construction materials will rise in 2023 by an average of 4%. 

 

Increased Labor Costs Continue  

One of the major reasons labor costs are increasing is the decrease in the number of skilled construction workers. The pandemic has forced many people to leave the construction industry, and it will take time for those workers to be replaced. In the meantime, the demand for construction projects is increasing, driving higher wages. 

 

Bottom Line: Construction Costs Are Not Decreasing Anytime Soon 

Construction costs are expected to remain elevated in the coming years, according to economists surveyed by the Urban Land Institute. This elevates the need for careful planning and budgeting to ensure projects stay on track and within budget. 

 

The economy will remain unbalanced with supply struggling to keep up with demand. A higher-than-average economy-wide inflation rate will exist for the remainder of 2022 and 2023. And the Federal Reserve Board will continue to raise interest rates to attempt to slow down the economy and bring down the rate of inflation.  

 

What Is Needed In 2023 & Beyond? 

RESILIENCE is the word that comes to mind as to what is needed as 2022 concludes and 2023 begins. Resilience is the process and outcome of successfully adapting to difficult or challenging life experiences, especially through mental, emotional, and behavioral flexibility and adjustment to external and internal demands. 

 

“Resilience is accepting your new reality, even if it’s less good than the one you had before. You can fight it, you can do nothing but scream about what you’ve lost, or you can accept that and try to put together something that’s good.” — Elizabeth Edwards. Attorney, author & health care advocate. 

 

 

Glenn Ebersole is a registered professional engineer and the Director of Business Development at JL Architects, a nationally licensed commercial architecture firm based in West Chester. He can be contacted by [email protected] or 717-575-8572.  

 

 

Mortgage rates slip below 5%

For the first time since April, the 30-year mortgage rate average has fallen under 5%. Freddie Mac’s Primary Mortgage Market Survey, released Thursday, showed the average for a 30-year, fixed-rate mortgage was down to 4.99%.

The week before, the average was 5.3%. A year ago, a 30-year, fixed-rate mortgage averaged 2.77%.

“Mortgage rates remained volatile due to the tug of war between inflationary pressures and a clear slowdown in economic growth,” Sam Khater, Freddie Mac’s chief economist, said in a release. “The high uncertainty surrounding inflation and other factors will likely cause rates to remain variable, especially as the Federal Reserve attempts to navigate the current economic environment.” According to the survey, a 15-year, fixed-rate mortgage averaged 4.26%, down from 4.58% the previous week and 2.1% a year ago.

Paula Wolf is a freelance writer

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