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Allentown, PA 18195 
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CONSHOHOCKEN
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Conshohocken, PA 19428 
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Harrisburg, PA 17101
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Mount Laurel, NJ 08054
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300 Delaware Avenue
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Wilmington, DE 19801
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Supply Shortfall

2017 Mid-Year Industrial Research & Forecast Report for Eastern Pennsylvania, Southern New Jersey, and Delaware

Regional Overview: Industrial Market

  • The regional vacancy rate decreased from 6.6 to 6.4 percent during the first two quarters of 2017.
  • Net absorption, at 11.5 million square feet, was off from last year's record levels, but historically still strong.
  • Asking rents increased by 1.3 percent from the end of the fourth quarter.
  • New construction deliveries increased during the second quarter after a lull at the beginning of the year.
  • With fewer investment-grade offerings, investors sought value-add properties and forward sales.
2017 Q2 Philadelphia Industrial Report Market Indicators

Single-digit vacancies prevailed in the regional industrial markets in 2017. Demand for new construction and previous generation buildings increased space shortages, particularly for 100,000 square feet and greater. The rapid absorption of speculative construction and an increase in RFP’s for potential build-to-suits have developers securing and entitling new development sites.

2017 Q2 Philadelphia Industrial Report Construction VacancyIn addition to sustained demand for bulk distribution space, there has been a noticeable increase in manufacturing requirements. This includes expansions to existing facilities, consolidating multistate operations into a single efficient location or leasing additional warehouse space to dedicate more room for production functions.

Asking rents averaged $4.81 per square foot. Traditional warehouse rents ranged from $3.25 to $6.75, depending on age, ceiling height, and location. Bulk warehouse rents ranged from $4.75 to $5.25 per square foot, and proforma rents for some new projects are above $6.00 per square foot. Landlords are holding firm on rents, and concessions have dried up. Quality buildings for user purchase are increasingly scarce, and rising prices for existing buildings are making build-to-suits more viable. As a result of the dearth of investment grade product, developers without long-term hold strategies are offering single-tenant facilities for forward sale before commencement of construction.

Submarket Reviews

Philadelphia County

The vacancy rate decreased from an adjusted 7.2 to 7.1 percent. The number of buildings able to accommodate a 100,000-square-foot requirement is dwindling as even lower-end space has been absorbed. Residential developments continue to devour older industrial space in the CBD-adjacent neighborhoods, but these areas have also seen an influx of artisanal uses that are utilizing otherwise obsolete space.

The announced $300 million investment in the Port of Philadelphia will modernize the facilities, increase capacity and result in new development as existing warehousing operations are relocated to Pattison Avenue.

Suburban Pennsylvania

The vacancy rate decreased from 6.6 to an extremely low 5.3 percent. There is a lack of quality supply in all size ranges, and the majority of available buildings have ceiling heights under 24’.

There are multiple development projects in the pipeline, particularly near the Lansdale and Quakertown interchanges of the Turnpike. Build-to-suit inquiries, and on site expansions are increasing. Penn Color will be adding on to its Hatfield complex, and U.S. Cold Storage is adding 200,000 square feet to its 400,000-square-foot facility in Quakertown.

Southern New Jersey

The vacancy rate decreased from 7.7 percent to 5.9 percent. Absorption totaled over 2.9 million square feet year-to-date, but slowed during second quarter. There were few existing blocks over 200,000 square feet, and the lack of quality choices for smaller space requirements was beginning to impact activity.

Turnpike exits 6 and 7 in Burlington County continue to attract North Jersey requirements. There was currently only one spec building under construction, but more were set to commence in Gloucester and Salem counties. Build-to-suits for Greenyard and Docuvault in Gloucester County were completed in the second quarter, and there was an additional 1.0 MSF project underway.

New Castle County, DE

New Castle County’s vacancy decreased during the second quarter after an uptick during first quarter. Del Monte Fresh Produce purchased an 183,017-square-foot building, which will be the company’s largest flagship distribution center.

Datwyler Sealing Solutions’s 275,000-square-foot manufacturing facility was under construction.

Lehigh Valley, PA

Sub-five-percent vacancy persisted in the Lehigh Valley during the first two quarters. Developable land has become increasingly scarce, and FAR costs have risen to between $20 and $30.

There are new developments in the pipeline adjacent to the new FedEx hub and spreading north on the Route 33 corridor into Wind Gap. There will also be an increase in the development of infill locations. Ridgeline Properties demolished the former Kraft facility to construct two 730,000-square-foot buildings. DCT industrial will be constructing two buildings totaling 335,800 on Tilghman Street in Iron Run Corporate Center.

Northeast Pennsylvania

The Northeast PA counties rebounded strongly during the first half. Vacancy decreased from 5.3 to 5.1 percent, and demand was strong for new construction and previous generation buildings.

The 808,160-square-foot building at Hanover Ridge leased to Chewy.com was completed. Spec buildings were underway in Humboldt Industrial Park and CenterPoint Commerce & Trade Park as well as a build-to-suit for Core-Mark at Hanover Crossings. Apollo Flow Controls will consolidate three operations into one distribution center in CenterPoint. Wegman’s will be further expanding its distribution operations in Highridge Business Park.

Southern I-81 and I-83 Corridors, PA

Multiple large leases and user purchases decreased vacancy from 7.4 to 6.9 percent at the end of the second quarter.

Whirlpool and Mattel have 1.0-million-square-foot-plus facilities under construction in Cumberland and Lebanon counties, respectively. Ace Hardware leased the entire 874,126-square-foot building in Lebanon Valley Distribution Center, which is being expanded by an additional 225,875 square feet for the requirement.

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Supply Shortfall: Quality Buildings for Purchase are Increasingly Scarce

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