Monday, May 21, 2018

Developers building industrial space on speculation

Natalie Kostelni Reporter Philadelphia Business Journal

About half a mile from I-95 in Marcus Hook, Anthony Diver has five-and-a-half acres in the Chichester Business Park and he knows exactly what he’s going to do with it. It’s something he hasn’t done in 12 years, but Diver is certain he and the market are ready for it.

The owner of West Chester’s Tamora Building Systems is going to develop a 63,000-square-foot industrial building on speculation — with no tenants lined up for it. He’s confident in his decision, which will cost about $5 million. “The vacancy is low and the market is strong,” he said.

Diver is hardly alone these days in striking now with a spec industrial building; such properties — used for manufacturing or to warehouse and distribute goods — are in high demand. The market for them is seeing all of the characteristics that fuel spec development. The overall vacancy rate in the Philadelphia metropolitan area stands at 5.9 percent and, in some submarkets, has sunk lower than that. While there’s ample demand, a limited supply is under development and rents are on the rise, according to CBRE Inc.’s first-quarter report.

These aren’t the big box warehouses that are 500,000 square feet up to 1 million square feet commonly found in the Lehigh Valley and central Pennsylvania and used by the likes of Amazon and Procter and Gamble. Rather, these are typically one- to two-story nondescript buildings ranging from 50,000 square feet to 250,000 square feet and used by an array of companies.

From Route 422 to Quakertown
Jay Bown, whose Industrial Investments Inc. owns 3.6 million square feet of such space in the counties surrounding Philadelphia, hasn’t seen a market quite like this in his 30 years in business. “This is the tightest I can remember,” Bown said. “We’re leasing things as soon as we have availabilities.”

While typical warehouse space runs about $5 to $6 a square foot, which is still pretty steep, some of Bown’s flex buildings are fetching rents as high as $10 to $12 a square foot.

He is embarking on his own version of spec space at 475 N. Lewis Road, a 169,000-square-foot building in Limerick. Industrial Investments paid $7.25 million for the property, banking that a company or two will want to occupy it once the existing tenant, John Middletown Co., moves out later this year.

“Right now, along the Route 422 Corridor down to King of Prussia, there are very few chunks of industrial space available,” Bown said. “You can’t find 50,000 square feet to 100,000 square feet.”

That’s hard to come by not only along the Route 422 Corridor but regionwide, and that’s a new reality for industrial brokers. Nick Adams of Jackson Cross Partners is seeing the issue manifest itself across most submarkets and, as a by product, has caused a new and heightened interest in Quakertown, Bucks County.

“There is a lack of inventory all over and so we’re seeing folks coming from the Lehigh Valley because they can’t find available land there and companies are moving up from Lansdale and Montgomeryville because they can’t find land or space there,” Adams said. “There is land in Quakertown and it’s right at the interchange of the Pennsylvania Turnpike.”

Gorski Engineering Inc. has been at the forefront of the development activity in Quakertown, having built out 50 acres of Milford Commerce North along AM Drive for Pulse Technologies, Celerity Integrated Services and Precision Finishing. Gorski has several projects in the works: in April, it submitted land development plans for 30 acres along New Road in Milford Commerce South, it aims to construct a 120,000-square-foot build-to-suit manufacturing building along Richland Commerce Drive in Northfield Business Campus and expects to add a 60,000-square-foot facility over the next 60 days, Kathy Gorski said. Separately, Nappen & Associates developing a parcel on AM Drive and seeking approvals to construct a 79,000-square- foot industrial building on spec at 2100 AM Drive. 

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