Just after 5 p.m. on a recent Thursday, cars were lined up to leave the parking garage next to ADP’s offices in downtown Allentown. Employees quickly made their way to their vehicles and joined the queue that creeped out to Eighth Street.
The scene was exactly what developers imagined when Allentown’s unique tax zone was created to spur redevelopment in Pennsylvania’s third-largest city. While much of the focus for developers in recent years has been on apartments, office space initially played just as big a role.
One of City Center Investment Corp.’s first plans announced in late 2011 was for an up-to-$60 million office complex that could house as many as 1,000 new workers. Less than two months later, Alvin H. Butz Inc. announced a $10 million plan to expand the company’s downtown Allentown headquarters with a new six-story building it said could draw another dozen businesses and 200 employees to Center City.
Those were just the first announcements. More would follow, including 5 City Center, Tower 6, the Waterfront, the pencil tower, 1 Center Square.
But then came 2020 and the pandemic, which emptied out offices in cities across the world — including Allentown.
Three years later, many employees continue to work from home or on hybrid schedules — a combination of working on and offsite — spurring tremendous changes in downtown economies.
Allentown, with its many new office spaces and accompanying businesses intended to serve those new downtown workers, has not been immune. But while many of its offices sit empty on some days, it has fared better than other, larger cities.
According to the Lehigh Valley Economic Development Corp., there is 29.5 million square feet of office space in the Valley with a vacancy rate of 8.8%. In the past five years, 1.3 million square feet has been added, and 22,175 square feet is under construction.
In downtown Allentown, there’s about 1.8 million square feet inside the city’s unique Neighborhood Improvement Zone, with the the majority of it owned by City Center. About 400,000 square feet is made up by the Butz Corporate Center, Trifecta Building, St. Luke’s Sacred Heart Camps and 615 Waterfront Drive, according to ANIZDA Executive Director Steve Bamford.
The soon-to-be-vacant PPL Building, which is not in the NIZ, adds another 205,000 square feet of office space.
Loopnet, a website that specializes in listing such properties, says there are more than 350,000 square feet available in Allentown’s central core along Hamilton Street.
How much office space is being used?
City Center alone has about 1.2 million square feet of office space — about 1 million developed between 2014 and 2019 — in the downtown area that’s centered at Seventh and Hamilton streets and includes the NIZ.
J.B. Reilly, City Center president, said the vacancy is 1% in those buildings.
“So our space is all leased,” he said.
Companies that have signed long-term agreements include Lehigh Valley Health Network, Truist Bank, ADP, Merrill Lynch and Morgan Stanley. Many of them have 15- to 20-year leases.
But how many people are actually at their desks at those offices?
Reilly said the utilization rate on City Center buildings is not where it was before COVID. It’s between 50% and 60%, going up to 75% or 80% during the middle of the week
“Mondays and Fridays are much lower,” he said. “Overall we’re somewhere in that 55% utilization rate.
“We track this monthly, so we have a lot of data on utilization,” Reilly said. “We track parking data, we track access into the building from card swipes and so forth. We continue to see increasing trends, it’s been very gradual.”
By comparison, Kastle Systems, an office security company, surveyed 10 major metropolitan areas in the U.S. and found that the average occupancy rate was 49.5% in mid May. Philadelphia was at 41.8% and New York was at 48.9%.
While companies are trying to get those numbers higher, Reilly said, the realities of the job market are making them tap the brakes on asking employees to make a full return.
“We know that a lot of employers still want to have more office utilization,” he said. “Most of the companies that are downtown continue to lean in that way. The reality in this marketplace is that because of the tight labor market, businesses are still reluctant to issue strong mandates.”
Jill Wheeler, vice president of sales and marketing at City Center Allentown, said utilization rates have been on the rise.
“The diversity of businesses, the utilization rates have risen for all different business types,” she said. “We have an accounting firm across the hall here that is 100% all the time in the office and then we have another accounting firm that has more of a remote model. There’s not one size per industry, it’s more of a cultural situation with different companies.”
Smaller businesses fueling Lehigh Valley office market
Sarah Finney-Miller, a real estate broker and vice president of NAI Summit in South Whitehall Township, said unlike the bigger cities, Allentown isn’t home to nearly as many larger corporations.
“I think maybe the worst is behind us, especially larger companies,” Finney-Miller said. “The positive thing with the Lehigh Valley, the reason why we kind of skated a lot of the issues that we saw in downtown Philly and D.C. and New York, is that the Lehigh Valley is mostly comprised of smaller businesses.
“So most of the small businesses are either back to work or they have flexible schedules where their employees do report a few days a week, so they still need a footprint, maybe it’s just not as large of a footprint as they originally had,” she said.
Two of those businesses are People’s First Federal Credit Union and Lehigh Mining and Navigation, both of which are back in their respective offices in downtown Allentown more often than not.
Loren Keim, owner of Century 21 Keim Realtors in Allentown and a professor at Lehigh University’s College of Business, has non-City Center clients in downtown Allentown that have room for small offices,
“We just sold that Jaetees Wicker building (at 730 Hamilton), next to ADP, and I think that’s going to be partly offices,” Keim said. “At 911 Hamilton we have several letters of intent for retail on the first floor that people want to move in.
“Then down the street at Fegley’s Brew Works (at 812-814 Hamilton) on the fourth floor, there’s beautiful office space with glass walls. We’ve got about 50% of that rented and we’ve got about 50% of it empty right now, and we’re marketing it everywhere. It’s just not catching the way I think it should.”
One building that’s looking for tenants is the Grand Plaza at 835 Hamilton. Formerly known as PPL Plaza, it has 254,782 square feet with eight floors.
DLP Capital, a private real estate investment and finance firm with roots in the Lehigh Valley, purchased the building for $15.3 million in December 2021 and re-opened it last June. During the reopening, DLP announced that it was moving its Pennsylvania headquarters to the building, which will take up the eighth floor and have about 80 workers.
A DLP representative didn’t return an inquiry from The Morning Call, but Loopnet lists more than 226,000 square feet of available space, including several thousand square feet of co-working space.
Companies opting for shared space
Keim said that some smaller businesses are looking for co-working space, which can be flexible.
“There’s so much vacant office space in the downtown area,” Keim said. “We’ve repositioned three buildings, not downtown, into shared office space like WeWork because we’re getting better traction from these people who need a desk or a small office than we are from larger firms that have people coming back to work.”
Companies are finding out that they may have to coax employees back with amenities that may not have been available before COVID.
“They have space that gives their employees a choice of where to work,” City Center’s Wheeler said. “So when you think about how you were working at home, you’d sit at your kitchen island, then maybe you’d be in your bedroom, and then maybe you’d go sit on the sofa. Young people always work like that. They like to move and they like to go to different places, but now all of us in all age groups [are working that way].”
Wheeler said it’s the quality of the space that fits how the company is trying to deliver on their goals and objectives.
Shared office space is a trend that doesn’t seem to be waning, according to commercial real estate company CBRE. According to its data, a majority of Americans have the option of hybrid work, and more than 70% of employees nationwide plan to expand their hybrid working options over the next three years.
“I sold a mostly vacant office building to an individual who is starting what we anticipate will be the largest shared office space operation in the Lehigh Valley,” said Doug Frederick, a Realtor at Howard Hanna The Frederick Group in South Whitehall. “We’re seeing significant demand in requests of people taking smaller space. They take on an office, two offices, three offices and then rent a conference room when they need it. Renting a meeting place when they need it.”
That client is Tom Riddle, who is converting Sodexo’s former offices in Lower Macungie Township into Synergy at Hamilton West, an office and co-working space that features everything from single shared desks to custom offices. Amenities range from phone booths for calls to executive conference rooms. Clients have 24/7 access, can have business mail delivered to a private box and take a meal in a lunchroom.
“You can see why companies would be interested in that sort of environment,” Riddle said. “And it’s not only for small companies, there are a number of large companies that are looking at the same type of arrangement so they can be more widely geographically distributed, and provide office space and collaborative space for employees that might live in different parts of the country. There’s more than just small companies involved.”
Reilly said socialization is one thing that’s drawing people back to the office.
“I think it is important to note that especially with younger people, one of the big drivers of getting people coming back into the office setting is socialization,” he said. “You don’t have socialization opportunities when you’re working by yourself in your house and coming back into the office is an opportunity to socialize.”
Companies opting for smaller spaces
With the option of shared workspace and struggling utilization rates, some companies may want to rethink leases to cut down on paying for empty desks.
CBRE said that while the number of office leases nationwide are 14% higher than pre-pandemic years, the total average square footage leased is down by 4%. That’s because more businesses are opting for spaces under 20,000 square feet, which was up 32%, while leases over 100,000 square feet decreased by 17%.
CBRE said smaller companies are leading the return to office, while larger companies are reducing their footprints due to less office utilization and the need for cost savings.
“We are seeing more office leasing activity and I think the nature of that activity is evidence that people are coming back because we’re seeing it mostly in the form of smaller space activity,” Frederick said. “We’re also seeing different dimensional requests in that activity, so people are maybe coming back in a downsized way and they’re coming back also realizing that some of their employees are going to continue to be virtual or partially virtual. So that word and concept of virtual work is coming in the space planning element as companies are leasing space.”
