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North Shenandoah Valley Industrial Report Report Q1 2022

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Market Overview

Demand for industrial space in the North Shenandoah Valley market continued during the fourth quarter totaling 378,130 square feet. This was the tenth consecutive quarter that the North Shenandoah Valley market had positive absorption. During the quarter, demand for warehouse/manufacturing product was 373,130 square feet, while absorption for flex product was 5,000 square feet.  
Over seven million square feet of product was under construction in the market, with numerous other projects in the pipeline. Berkeley County, WV, and Washington County, MD account for the majority of this development currently underway. 

 

Executive Summary

The North Shenandoah Valley industrial real estate market was marked by a series of speculative warehouse projects under construction, most notably in both the Hagerstown MSA and outside of Martinsburg, WV. The development pipeline for new product along the I-81 corridor totaled over 7 million square feet. This includes Penzance developing 825,000 square feet at Hagerstown Crossroads and Johnson Development underway with 1.2 million square feet at their Interchange Crossroads site off Route 70 in Washington County. Further south in Martinsburg, WV, Hines has construction underway on two distribution facilities of 365,000 square feet each, and Equus Capital Partners is underway on 324,000 square feet, which represents phase 3 at their Mid-Atlantic 81 Logistics Center. Both are just south of the Procter & Gamble campus. Finally, in Winchester, VA, the Peterson Companies are beginning site work on their 350,000 square foot project off Shady Elm Road, which should deliver early next year. 

The big news on the demand front was Hitachi Rial’s announcement to establish a $70 million manufacturing operation in Washington County, MD located on Greencastle Pike. Once finished, the 300,000 square foot facility will be used to produce the 8000-series railcar as part of a $2.2 billion contract with the Washington Metropolitan Area Transit Authority (Metro). The majority of the 378,000 square feet of positive absorption consisted of smaller deals in Hagerstown and surrounding areas where tenants started to take what little Class B product remains available.
Asking rates for overall industrial product started the year 

at $5.44 per square foot, up $0.32 from a year ago. Rates for new, Class A industrial properties are pushing north of $6.00 NNN from a lack of new warehouses and increased demand from smaller users in the 50k-150k square foot range. Notably, there is more demand starting to come from tenants located in Northern Virginia. These tenant are slowly becoming priced out of the Dulles and the I-95 corridor, as rents rise unabated and options greater than 100,000 square feet become increasingly scarce.

The next quarter will see robust industrial pipeline deliver and will test whether the market will continue to absorb speculative warehouse product at its recent historic rate. Finally, given the increased cost of materials and delays caused by disruptions to the supply chain, occupiers will be more diligent than ever in needing to see site-work progress before committing.


Demand/Supply

Demand for industrial space in the North Shenandoah Valley market continued during the fourth quarter totaling 378,130 square feet. This was the tenth consecutive quarter that the North Shenandoah Valley market had positive absorption. During the quarter, demand for warehouse/manufacturing product was 373,130 square feet, while absorption for flex product was 5,000 square feet.

Over seven million square feet of product are under construction in the market, with numerous other projects in the pipeline. Berkeley County, WV, and Washington County, MD account for the majority of this development currently underway. 

Vacancy

The market’s overall vacancy increased from 3.6 percent to 3.7 percent during the quarter. The warehouse product vacancy increased 20 basis points to end at 3.8 percent, while flex ended the quarter at 1.4 percent. Warehouse product vacancy stood at 5.3 percent a year ago, while flex was 6.3 percent at that same time.  

Rental Rates

Overall asking triple net rates in the North Shenandoah Valley market decreased during the quarter due to the low inventory of Class A space available. The current overall asking rate on existing space ended the quarter at $5.44 per square foot. Overall average rental rates for warehouse product increased and ended at $5.40 per square foot, up from $5.09 per square foot a year ago. The overall flex asking rate was $7.50 per square foot at the end of the quarter. New construction, especially on the northern end of the market, is expected to ask north of $6.00 per square foot.


warehouse

North Shenandoah Valley Industrial Report Report Q1 2022

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