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"Growing" Demand

Regional Overview

  • The regional vacancy rate decreased from 7.4 to 6.4 percent during the last two quarters of 2016.
  • Net absorption totaled 27.6 million square feet, the highest annual total on record.
  • Asking rents increased by 4.0 percent from the end of the second quarter.
  • Build-to-suit construction outpaced spec at year-end, but more speculative projects will be gearing up.
  • There were fewer investment-grade sales, but there were high-watermark prices achieved in a few submarkets.

2016 Q4 Industrial Market IndicatorsThe regional industrial market had a strong performance during the last two quarters of 2016. In addition to the existing demand drivers of e-commerce, food, electronics and consumer products, a new sector emerged: medical marijuana growers. In Pennsylvania, potential growers and processors are seeking locations in advance of license approvals.

In excess of 21.6 million square feet of new construction was completed in 2016. The 8.3 million square feet completed in the fourth quarter was higher than the annual totals for each year from 2009 through 2013.

Asking rents increased by $0.16 to an average of $4.89 per square foot. Suburban Philadelphia and the Lehigh Valley had the largest jumps in asking rents. Warehouse rents ranged from $3.25 to $6.75, depending on age, building feature, and location. New generation bulk warehouse rents ranged from $4.75 to $5.25 per-square-foot. User sale prices also increased by approximately 10.0 percent to an average of $47.93 per-square-foot.2016 Q4 Industrial Supply Construction

Submarket Reviews

Philadelphia County

The vacancy rate decreased to 6.6 percent. Occupancy was boosted by the completion of build-to-suits for FedEx and Turn 14 Distribution in Montgomery County and Continental Tire’s lease in Quakertown.

There is an extremely limited supply of single-story, single-occupant buildings under 100,000 square feet in Philadelphia.

Suburban Pennsylvania

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.

Prospective marijuana growing operations have been actively searching for freestanding buildings, but the supply is limited. Multiple development sites are in play and, while spec construction is anticipated until 2018, there may be additional build-to-suits commencing.

Southern New Jersey

The vacancy rate decreased from 9.5 percent at mid-year to 7.2 percent as South Jersey posted its strongest results ever in absorption and new construction. The major counties of Burlington, Camden and Gloucester all had single-digit vacancy. Demand from e-commerce tenants, North Jersey requirements, and organic growth from existing companies resulted in 7.5 million square feet of absorption.

There was a temporary dip in the number of projects under construction, but more build-to-suit and spec projects will be starting in 2017. Land sale activity increased as developers are securing new sites.

New Castle County, DE

The New Castle County industrial market rebounded strongly in 2016. The 8.5 percent vacancy rate was the lowest level in a decade and the 1.2 million square feet of absorption was the highest level in four years.

The increase in demand came from international locations, surrounding states, and expanding Delaware companies. Datwyler Sealing Solutions purchased land for a 275,000-square-foot manufacturing facility in Middletown, DE.

An additional large, persistent vacancy will be removed due to the sale of the Avon facility for redevelopment.

Lehigh Valley, PA

The vacancy rate in the Valley hit an historically low 2.9 percent even with an historically high 7.7 million square feet of new construction. Uline’s new buildings totaling 1.67 million square feet were completed, and Verizon and East Penn Manufacturing leased two recently completed spec projects.

Bulk construction starts were down at year-end while the next wave of projects gears up. Site work and road improvements have commenced on the new FedEx hub. With the limited supply of manufacturing and non-bulk warehouse, there were multiple build-to-suits underway for Reeb Millwork, Ecopax, Bakerly and Hovertech.

Northeast Pennsylvania

Following two years of flat or negative demand, the Northeastern PA counties had a sharp uptick in activity and decrease in vacancy during 2016. Vacancy decreased from 7.4 percent at mid-year to 5.6 percent. Absorption was at the highest level since 2007.

Spec projects were underway in Centerpoint Commerce Park and Hanover Ridge Trade Center. The Hanover Ridge building was preleased by

Southern I-81 and I-83 Corridors, PA

The vacancy rate remained in the 7.4 percent range during the last two quarters due to the delivery of four spec buildings totaling 1.9 million square feet.

Activity increased during the fourth quarter, particularly for projects in York and Lebanon County, with new deals signed by Malt-O-Meal, Pirelli, and Dollar Express.

Whirlpool will be moving from 800,000 square feet at Exit 44 of I-81 to a 1.0 million square foot building at Exit 52. Mattel has committed to a 1.0 million square foot building at the I-81/I-78 split in Lebanon County.

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