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PHILADELPHIA-Best known for its 35 million sf of manufacturing and distribution space, the Lehigh Valley is now aggressively marketing office space, according to a report by Michael Bartolacci, vice president of Chatham, NJ-based The Garibaldi Group, who heads his firm’s newly opened office in Bethlehem, PA. “Industrial users are continuing to expand in the area, albeit at a slower pace,” he says.

The Lehigh Valley office market consists of more than 7 million sf, according to Bartolacci, and the vacancy rate is approximately 15%. “Asking rates for class-A space are between $17 and $18 per sf,” he says, adding, “there are several new class-A units and sublease availabilities, encouraging landlords to become more aggressive in their leasing practices.

“A trend in the region is the construction of office buildings in Downtownmarketplaces,” Bartolacci says. He cites Liberty Center in Downtown Bethlehem, leased by Fireman’s Fund Insurance, and the new 80,000-sf Broad & New Building, also in Bethlehem. In addition, he notes that Pennsylvania Power & Light is currently building a 209,000-sf facility in Downtown Allentown, which will include 30,000 sf of retail.

Meanwhile, nearly 2 million sf of new industrial space came on the market in 2001. That, plus the overall economic climate, has also led to bargaining.

“While the average asking (industrial space) rental rates dropped from (a range of) $4.35 per sf to $4.50 per sf in the beginning of 2001, deals are now closing at below market rents (or) less than $4 per sf,” he says.

Bartolacci expects the industrial market to stabilize “in the near future,” and rental rates to return to their previous range, with office rates following suit. “However, most developers will continue to avoid speculative office development without a lead tenant in place,” he concludes, “thereby limiting their exposure and the potential for over-development.

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