The second half of 2021 saw a spike in absorption along the I-81 corridor, particularly in Washington County, Maryland and in the eastern panhandle of West Virginia. In Hagerstown, Amazon took occupancy of over 1 million square feet in NorthPoint’s project off Wesel Boulevard while Herbalife occupied 177,673 square feet in an adjacent building. Further south along the interstate in Berkeley County, West Virginia, Procter & Gamble continued to expand on their manufacturing campus and occupied an additional 400,000 square feet of distribution space in the Berkeley Business Park. In neighboring Jefferson County, West Virginia, an insulation manufacturing operation’s manufacturing facility delivered 460,000 square feet, located near their 138,000 sf of distribution space in the Kearneysville’s Burr Business Park. In Winchester, Virginia, Ferguson Enterprises leased 90,000 square feet from Pruitt Corporation near the Winchester Airport, effectively taking the last large block of Class A space in that submarket.
The overall asking market rental rate has steadily climbed to $5.39 with some southern submarkets in Virginia commanding rents closer to the $6.00 per square foot mark. The current asking rate for industrial warehouse is roughly $0.86 higher than this time last year, a strong indicator of increasing demand and low supply.
Record low vacancies in submarkets like Berkeley County, WV and Winchester, VA speak to a rising demand for modern warehouse coupled with an unprecedented shortage in inventory. The pipeline for speculative warehouse product has increased in areas like Hagerstown, MD where tax incentives coupled with a surging demand from e-commerce retailers are attracting big-box developers such as Penzance and Panattoni. The Hagerstown/Washington County submarket boasts the most robust immediate pipeline with 1.8 million square feet under construction and another 4.5 million square feet set to break ground in 2022. Construction starts are being hampered due to a shortage in raw and finished materials including resin, steel, lumber, and insulation as well as a shortage in the construction workforce. Still, the record-low debt levels, relatively low land costs, and surging demand from both e-commerce giants and regional players continues the strong cycle of building and leasing.
Demand for industrial space in the North Shenandoah Valley market continued during the third quarter, registering 1.9 million square feet of absorption. This was the eighth consecutive quarter of positive demand in the market. During the quarter, demand for warehouse/manufacturing product was 1.8 million square feet, while absorption for flex product was 39,461 square feet. At the end of the quarter, 2.9 million square feet was under construction.
Three buildings delivered during the quarter. NorthPoint delivered their 1 million square foot project leased to Amazon and a 177,000 square foot property which is leased to Herbalife at the Hagerstown Logistics Center. A manufacturer, delivered and moved into their 460,000 square foot manufacturing facility in Jefferson, West Virginia.Vacancy
The market’s overall vacancy decreased from 5.1 percent to 4.5 percent during the quarter. The warehouse product vacancy dropped 50 basis points to end at 4.5 percent while flex vacancy ended the quarter at 5.2 percent. Warehouse product vacancy stood at 6.1 percent a year ago while flex vacancy was 5.3 percent at that same time.Rental Rates
Overall asking triple net rates in the North Shenandoah Valley market increased $0.03 during the quarter, ending at $5.39 per square foot. This compares to a year ago when the overall rental rate stood at $4.55 per square foot. Overall average rental rates for warehouse product increased $0.03 to end the quarter at $5.38 per square foot while rental rates for flex ended the quarter at $7.00 per square foot.