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Shenandoah Valley Industrial Report Report Q2 2020

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Industrial and E-Commerce Product Avoid Havoc Wreaked by Covid-19

    

Covid-19 wreaked havoc with most commercial real estate property types in the second quarter of 2020 but not so with industrial and e-commerce product which continued to show strong signs of a healthy market despite harrowing times for the economy. The I-81 Corridor was no exception to this trend, holding its own with over 1.5M square feet of absorption in the second quarter with continued constraint on supply in the face of steady demand.

It should come as no surprise that the charge was led by Amazon, which moved into 1.2M square feet at Trammell Crow’s I-81 Industrial Center in Hagerstown, MD. Of particular note is that this was not a build to suit, but a major coup for Crow after being the first developer in the Northern Shenandoah Valley to go spec on such a large building back in the summer of 2019. Other absorption of note includes Bowman Logistics’ purchase and occupancy of 178,000 square feet at 748 Novak Drive in Martinsburg for third party logistics work for Proctor & Gamble. In Winchester, the FBI began a phased move-in into their recently-completed 256,000 square foot Central Records Complex which delivered this year.

Other spec development in the corridor is limited in size and will most likely be absorbed by year end. This includes Shockey’s 404,000 sf in Berkeley County at 5694 Winchester Avenue in Martinsburg, WV that just received its certificate of occupancy and Equus Capital’s 350,000 sf which will deliver next quarter. Shockey’s building is strategically located between P&G and a build to suit site for Clorox and Equus is in the Greystone Industrial Park in Winchester. Shockey is also delivering two smaller buildings in Greystone later this year with sizes of 175,000 sf and 63,250 sf, respectively. The only other spec product in the queue is Northpoint Development’s 178,000 sf on Wessel Drive in Hagerstown.

The pause in capital markets due to the pandemic stopped additional spec development until 2021 which will serve to constrain supply and drive up rental rates, especially in the Class A product type. Even now, asking rates for Class A are slightly below $5 NNN, a record high for the corridor. Both these asking rents and land prices for shovel ready industrial should increase as the market slowly returns to equilibrium.

Finally, the market is closely watching the e-commerce phenomenon which will only increase in the post-pandemic economy and the I-81 Corridor in the Northern Shenandoah Valley should share in the benefits of this demand.


Demand

Demand for industrial space in the Shenandoah Valley market increased during the second quarter of 2020, with 1.5 million square feet of absorption. During the quarter, demand for warehouse product was 1.5 million square feet, while demand for flex product was flat, giving back 5,113 square feet to the market. Washington County, MD accounted for the majority of absorption due to Amazon moving into 1.2 million square feet. 

Supply

During the quarter, 1.85 million square feet of new space delivered in the market. This dropped the under construction total to 1.57 million square feet of space. Trammell Crow’s 1.2 million square foot warehouse was completed and is fully leased to Amazon. 5694 Winchester Ave, which was built on a speculative basis delivered vacant, adding 404,040 square feet to the market. This space was taken by Home Depot. Northpoint broke ground on Building 3 at Hagerstown Logistics Center. The 177,673 square foot building will be the developers first on the site.

Vacancy

The market’s overall vacancy increased during the second quarter from 4.9 percent to 5.1 percent. This is in part due to 5694 Winchester Ave delivering vacant. The warehouse product vacancy ended the first half of 2020 at 5.2 percent. Vacancy for flex product ended at 4.5 percent.  

Rental Rates

Overall asking triple net rates in the Shenandoah Valley market decreased $0.10 to end the quarter at $4.27 per square foot. This compares to a year ago when the rental rate stood at $4.29 per square foot. Overall average rental rates for warehouse product decreased $0.11 to end the quarter at $4.25 per square foot while rental rates for Flex ended the quarter at $8.13 per square foot. Class A warehouse product is still seeing rates closer to $4.75-$5.00 per square foot in the market.


warehouse

Shenandoah Valley Industrial Report Report Q2 2020

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