Monday, August 1, 2016

Philadelphia Area Industrial Performed Strongly In First Half

by Steve Lubetkin,
The regional industrial market performed strongly during the first half of 2016. In a mid-year industrial research and forecast report, vacancy decreased despite the addition of 8.1 million square feet of speculative construction and the shutdown of three larger manufacturing facilities in Chester, Montgomery, and Lehigh counties.

More than half of the new speculative space was leased prior to, or shortly after completion.

Asking rents increased in all submarkets.. Free rent periods have decreased and the gap between asking and signing rents is generally below 10 percent. Warehouse rents range from $3.25 to $5.00, depending on age and specific location. New generation bulk warehouse rents range from $4.75 to $5.25 per square foot.

Submarkets around the region.

Philadelphia County: The vacancy rate decreased to 7.2 percent in the second quarter of 2016. Larger transactions included Ocean Desert Sales’ expansion within the market to Tomlinson Road and Maryland-based Regency Furniture’s purchase of Deb Shops’ former warehouse. Changes to Pennsylvania’s wine and beer system are expected to increase activity by beverage distributors. WuXi AppTec’s new 145,000-square-foot facility at the Navy Yard will be the largest gene manufacturing operation in the country.

Suburban Pennsylvania: The vacancy rate of 7.1 percent was down from the end of 2015 but was up slightly from the first quarter. Occupancy was affected by the shutdown of Quad Graphic’s facilities in Atglen and East Greenville. Aside from these vacancies, leasing activity was strong. There is an additional large deal pending that will take down a major vacancy in Quakertown. New construction has been increasing. In addition to FedEx and smaller spec facilities in Montgomery County, construction will be commencing on a 210,000-square-foot build-to-suit for Turn 14 Distribution in Hatfield. Exeter Property Group has begun site work on the expansion to 8 Lee Boulevard in Malvern.

Southern New Jersey: Industrial demand continues to absorb vacancy and spur new construction. The vacancy rate decreased to 9.5 percent. H&M and AHR moved into new buildings in Burlington County. E-commerce is a growing demand sector with’s lease of a newly completed spec building in Salem County and’s 98,000-square-foot lease in Burlington County. Fieldlink leased space from Dermody Properties in Gloucester County. This building will join the 393,120-square-foot spec building under construction. Liberty’s 613,920-square-foot building in Florence has been preleased by Amazon. First Industrial has 577,200 square feet underway at a neighboring site. VCS Shoes plans a new 683,000-square-foot warehouse in Westampton.

Lehigh Valley, PA: The vacancy rate ticked up during the first quarter but dropped during the second quarter to 3.2 percent. Four spec buildings were completed year-to-date, with two preleased prior to completion by California Cartage and Behr Paints. Only Griffin Land’s 252,000 square feet remain vacant. The six speculative buildings completed in 2015 have all been leased. Five additional spec buildings are under construction, the largest of which is Liberty Property Trust’s 1.2 million square feet. Uline’s two buildings, totaling 1.67 million square feet, will be completed in the third and fourth quarters.

Northeast Pennsylvania: Vacancy was down year-to-date but up during the second quarter to 7.4 percent. Hudson Bay Company leased the 455,000-square-foot building on Keystone Boulevard in Pottsville which had been vacant for three years. ProLogis is expanding this building by 175,000 square feet for HBC. FedEx has 312,356 square feet underway in Grimes Industrial Park. Both FedEx and HBC will be vacating other facilities.

Southern I-81 and I-83 Corridors, PA: The delivery of 3.8 million square feet of spec construction resulted in a jump in vacancy to 7.4 percent. Starbucks leased Hillwood’s 1.2-million- square-foot building in York and UPS leased 355,000 square feet in a 2015 spec building in Carlisle. The I-81/I-78 split in Lebanon County, I-81 Exit 44 in Carlisle, Exit 24 in Shippensburg, and Exit 8 of I-83 have been the most active areas for new development.

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