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Few Commercial Interruptions This Time Around, Recession is Sparing Commercial Real Estate, Mostly

07.16.2020


Northeastern Pennsylvania - Local commercial property lost its luster a decade ago when the Great Recession sacked national real estate markets.

 

Now, as the economy wobbles at the hand of the COVID-19 pandemic, that hasn’t quite happened.

 

Major acquisitions and projects have recently accelerated, some even before temporary restrictions on in-person commerce lifted, though experts say we’re not out of the woods yet.

 

A vast structure rises on the hilltop along Archbald Heights Drive in Archbald. Chewy, the online pet supply retailer, is nearing completion of a 1 million-square-foot distribution center.    JON O’CONNELL / STAFF PHOTO


“It’s really hard to compare the two yet because this one’s not over,” said John Augustine about the Great Recession and this one. He’s president of Penn’s Northeast, a collective that nurtures commercial and industrial investment in the region.


The pandemic laid waste to the collective supply chain. It also crushed an already teetering storefront-based retail sector. Meanwhile, unlike a decade ago, a few enormous development projects are moving forward virtually unhindered.

 

Projects take shape

At this time last year, sites for a pair of 1 million-square-foot buildings in Archbald and Jessup were little more than rocky plots in the Valley View Business Park. The landscape changed dramatically since then, with two behemoth buildings erected and nearing completion.

 

In Archbald, online pet supply retailer Chewy’s 1 million-square-foot distribution center rises from the hilltop off Archbald Heights Drive, just past the Cardinal Glass LG factory. Chewy, which already has a distribution center in Hanover Twp., promised to fill it with 1,000 jobs.

 

Likewise, the similarly sized Valley View Trade Center on Valley View Drive, under construction by Dallas, Texas, developer Trammell Crow Co., nears completion on a neighboring hilltop.

 

And a third major project in a nearby neighborhood, what is suspected to be a canning plant for mushrooms, is pending in Olyphant at the site of the former Technicolor compact disk factory.

 

A company with ties to the mushroom seller Giorgio Foods bought the factory, one of the first 1 million-square-foot plants in the region, for $12,000,000 in May.

 

The Giorgio affiliate has not disclosed any plans for the site. Public officials who approved tax breaks for the project have said the developer plans to tear down the old structure and build new. Company officials told the Valley View School Board earlier this year the new site would involve shaping aluminum.

 

Those three projects alone mean thousands of new jobs for Northeast Pennsylvanians and offer a valuable counterpunch to record unemployment numbers achieved this year.

 

In the years following the 2008 economic crash, which was triggered by too many bad mortgages flooding financial markets, Mericle Commercial Real Estate Services’ parks at Hanover Industrial Estates and CenterPoint, now beehives of activity and new construction, languished with diluted interest.

 

The 2008 crash was not an all-out freeze on progress, and in some ways, Northeast Pennsylvania’s regional economy escaped some of the worst blows. Construction on the Commonwealth Medical College, now Geisinger Commonwealth School of Medicine, got underway in 2009, as did clearing for the Mount Pleasant Corporate Center, which now has three office buildings owned entirely by the Geisinger health system.

 

Traditional retail hit hardest

Commercial real estate comes in three flavors. There’s retail, office and industrial, and the pandemic treats each one differently.

 

Traditional retail is taking it the hardest.

 

“That’s a shift that was occurring pre-COVID, and COVID just accelerated it,” said John Cognetti, president at Hinerfeld Commercial Real Estate. “I think a lot of the retail was overbuilt to begin with.”

 

Real estate investment trusts, which own shopping malls that are already hollowing out, likely will have to reimagine what to do with those hulking buildings and expansive parking lots, Cognetti said.

 

He said commercial districts popping up around cities across the country often replicate a Main Street feel, with shops, apartments and entertainment venues all in packaged communities.

 

He suggested the level mall plots in Scranton and Dickson City, and especially the Wyoming Valley Mall in Wilkes-Barre Twp., could more easily adapt to that kind of model, and also offer spectacular views of the Lackawanna and Wyoming valleys respectively.

 

Real estate is a lagging indicator, said James Nasser Sr. of Nasser Real Estate.

 

“We’re not seeing it quite yet,” he said, suggesting six months from now could see all that pent up interest in both commercial and residential space, which burst out as soon as restrictions lifted, ebb away when more people simply stop investing.

 

It’s unclear just what the pandemic will do to office space.

 

A greater push toward telework means more people will work from home. Logically, that eliminates the need for some office space. But then again, for the companies that keep their offices, they’ll need more room for social distance, so that could mean fewer businesses take up more space.

 

Then there’s what some have predicted could be a great exodus from major metros, as corporations large and small discover they don’t need a floor in a fancy high rise, and they want to give their employees a more affordable housing market with more breathing room.

 

Cognetti recently listed the PenFed Credit Union building on Franklin Avenue in Scranton’s central business district. Already, he’s seeing eager interest in it.

 

The future of manufacturing also remains unknown. The northeast has a growing manufacturing sector, but not as fast as others like health care, transportation, and warehousing.

 

That could start to change slowly, Augustine said, as more smaller manufacturers, part of larger supply chains, pull their operations out of China and bring them back to U.S. soil. He’s got evidence that it’s already starting to swing away from the frenzied push for warehousing and logistics projects, more toward manufacturing.

 

“Out of our 10 strong leads, eight are manufacturing, when last year that would have been flipped,” he said.


- John O'Connell, Times Tribune

https://www.thetimes-tribune.com/news/business/this-time-around-recession-is-sparing-commercial-real-estate-mostly/article_63db8cad-3555-50c2-8bd2-d32d3f51f294.html?



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