Dir: +1 215 928 7505
Ten Penn Center
1801 Market Street
Philadelphia, PA 19103
Main: +1 215 925 4600
Fax: +1 215 925 1040
7535 Windsor Drive
Allentown, PA 18195
+1 610 770 3600
Eight Tower Bridge
161 Washington Street
Conshohocken, PA 19428
+1 610 684 1850
300 N. Second Street
Harrisburg, PA 17101
+1 717 730 3752
1317 Route 73
Mount Laurel, NJ 08054
+1 856 234 9300
300 Delaware Avenue
Wilmington, DE 19801
+1 302 425 4000
The regional industrial market had a strong finish to 2015. Demand kept pace with 5.7 million square feet of completed spec projects. Third party logistics companies and e-commerce retailers were active. “Last Mile” delivery requirements are likely to increase in 2016.
New bulk deliveries should alleviate the space constraints for tenants requiring over 100,000 square feet. However, with additional bulk deliveries in the first half of 2016, there may be a temporary over-supply until demand catches up. Quality space choices for companies seeking between 25,000 to 80,000 square feet are limited in most submarkets, particularly buildings for sale.
Asking rents increased in all submarkets. Free rent decreased and the spread between asking and signing rents narrowed. Additionally, annual rent escalations were trending upward. While 2.0 percent annual rent increases for signed deals was still the norm, 2.5 to 3.0 percent escalations were becoming more prevalent.
The vacancy rate decreased to 8.0 percent during the third and fourth quarters of 2015. Tenants expanding within the market, like Liss Global, boosted absorption. There is supply in the 100,000-square-foot-plus range, but there were few choices for companies looking to purchase buildings from 50,000 to 80,000 square feet.
New development continued to be focused in South Philadelphia with flex/R&D projects at the Navy Yard for WuXi AppTec and Axalta’s announced 175,000-square-foot project. The City is seeking a developer for the 28-acre former Produce & Seafood Market.
Vacancy increased during the third quarter, but decreased to 7.5 percent in the fourth quarter. Georgia Pacific’s move from 936,000 square feet in Quakertown resulted in the Q3 spike. With a dwindling supply of quality space, there is a premium on freestanding buildings, particularly for user purchase.
More land sites are in play as developers are more receptive to new projects. While bulk projects are still likely to go to the I-78 and I-81 corridors, there is the potential for new spec construction and last mile warehousing.
Southern New Jersey finished 2015 with the highest level of annual absorption since 2006. Expansions by existing tenants such as Simon & Schuster and Subaru, combined with steady leasing and user purchase demand kept pace with spec deliveries.
Four spec buildings were completed in the second half. Dermody’s 171,600 square feet at LogistiCenter was fully leased at completion. Two buildings scheduled for early 2016 completion in Burlington were preleased by H&M and AHR Group. Additional spec buildings are underway at the poles of the market in Burlington and Salem County. With low vacancies in Central Jersey, interest in the Exit 6 and 7 areas has increased.
Following a vacancy spike in the 2nd quarter, New Castle County showed recovery during the last half. Absorption would have been higher, but the CEVA deal in Twin Spans went to a building that was not officially on the market.
Tax incentives have been successful in attracting and expanding companies such as Techmer Engineered Solutions, A.B. Converters and Mishimoto. These companies leased a combined 154,291 square feet during the second half of 2015.
The vacancy rate hit an historically low 2.1 percent in the 3rd quarter. The completion of 2.3 million square feet of spec space in the 4th quarter increased vacancy, but only to a comparatively low 5.5 percent. Bulk demand remained strong, but the Valley’s manufacturing sector showed some weakness. Kraft will be shuttering an 823,000-square-foot facility.
Liberty Property Trust is constructing 1.7 million square feet for Uline and a 1.2- million-square-foot spec building. On the eastern side of the Lehigh Valley, Duke’s 1.1 million-square-foot spec building is scheduled for early 2016 delivery.
Absorption of older-generation space boosted this submarket. Vacancy decreased from 8.2 to 7.8 percent. Crystal Window & Door Systems purchased the chronically vacant Benton Business Park, and is relocating manufacturing operations from New York.
Mericle Development continues to add inventory at the CenterPoint Park with a 399,500-square-foot spec building and a 279,000-square-foot building, which has been substantially preleased by Quietflex Manufacturing.
Vacancy increased a full percentage point in the last half of 2015. Georgia Pacific moved into its new 1.5-million-square-foot facility in Shippensburg, but vacated space in Carlisle. In addition, 1.6 million square feet of spec space was completed. Another 3.8 million square feet of spec space will be delivered in the first half of 2016, with site work commencing on an additional 957,475 square feet.
Demand from 3PLs has remained strong, but there has been a lull in e-commerce requirements.
Click here to download the full report as a PDF.
New construction and lots of it is the overwhelming theme in Eastern Pennsylvania. There is currently almost 13.1 million square feet underway as of the end of the 3rd quarter. This is the highest quarterly total in the current market cycle.
Trends, Forecasts, and Perspectives in Commercial Real Estate
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