Market fundamentals remained strong in the North Shenandoah Valley industrial market. Positive demand in the market continued for the ninth consecutive quarter and asking rates increased again in the market. 2022 is setting up to be an active year for development.
Development activity in the North Shenandoah Valley market remains strong with several projects poised to break ground in 2022. The North Shenandoah Valley saw 386,000 square feet of positive absorption, predominantly in Hagerstown where Tempur-Sealey leased and occupied 215,000 square feet at 11841 Newgate Boulevard. For the first time on record, warehouse vacancy for the corridor dropped below 4 percent.
Year-end asking rates stand at $5.56 NNN compared to $4.90 NNN one year ago. Largely this is due to a strong uptick in demand and limited supply, particularly of Class A distribution warehouses. Vacancy for the market sits at 3.8 percent, almost 2 percent lower than at the end of 2020. Although deliveries are expected to increase greatly in 2023, many of the speculative warehouse projects are spread across Hagerstown, Martinsburg, and to a lesser degree Winchester with staggered deliveries and entitlement challenges.
Construction continued on several warehouse projects started earlier in the year, including Panattoni’s 730,000 square-foot Creekside Logistics Center and Penzance’s 825,000 square-foot Hagerstown Crossroads project, both located in Hagerstown, Maryland. Also in Hagerstown, Johnson Development began sitework on their Interstate Trade Center project on the north side of I-70. Further south in Martinsburg, West Virginia, Hines also began sitework on their Tabler Station Logistics Park which will see two distribution facilities of 365,000 square feet, both of which are expected to deliver in 2022. Also in Martinsburg, Equus continued work on Phase 3 of their Mid-Atlantic I-81 Logistics Park that will deliver 324,000 square feet by fall of 2022.
The North SVI corridor continued to show strong fundamentals throughout 2021 and experienced a noticeable uptick in demand linked to the pandemic and its impact on e-commerce. This trend is expected to continue into 2022 as additional onshoring and realignment of supply chains becomes more prevalent.
Demand/SupplyDemand for industrial space in the North Shenandoah Valley market continued to track upward during the fourth quarter, totaling 386,100 square feet. This was the ninth consecutive quarter that the North Shenandoah Valley market showed positive absorption. During the quarter, demand for warehouse/manufacturing product was 355,100 square feet, while absorption for flex product was 31,823 square feet. Construction remained active in the market with 3.1 million square feet underway at the end of the quarter with the Washington County/Hagerstown area accounting for over half of the product underway. Leading into 2022, development activity looks to remain strong as a number of additional projects are poised to break ground early in the year.
VacancyThe market’s overall vacancy decreased from 4.5 percent to 3.8 percent during the quarter. The warehouse product vacancy dropped 70 basis points to end at 3.8 percent, while flex vacancy ended the quarter at 4.2 percent. Warehouse product vacancy stood at 5.6 percent a year ago, while flex vacancy was 6.4 percent at that same time.
Overall, asking triple net rates in the North Shenandoah Valley market increased during the quarter, ending at $5.56 per square foot. This compares to a year ago when the overall rental rate stood at $4.90 per square foot. Overall average rental rates for warehouse product increased by $0.23 to end the quarter at $5.55 per square foot, while rental rates for flex ended the quarter at $7.00 per square foot.