The industrial market in Reading, Pennsylvania, finds itself in a precarious position entering the fourth quarter of 2020, and things could improve or deteriorate rapidly.
The market's vacancies are close to 13.5%, largely due to a surge of construction over the past five years. Developers have brought more than 7 million square feet online during that time, but demand hasn’t kept pace until very recently.
Incredibly, 2020 has been one of the strongest years of industrial demand in Reading's history. Since January, more than 2.1 million square feet has been absorbed, which is more demand than the market saw in the previous five years combined. A substantial chunk of this space was filled by Amazon, which filled more than 1 million square feet at the 78 Trade Center in the first quarter.
Amazon is a logistics demand generator by itself, but the real draw in Reading is Interstate 78, which is Pennsylvania's main trade artery. Recent development has been centered around access to it, and Reading lies midway between Harrisburg and Lehigh Valley, two of the commonwealth's most prominent distribution nodes.
But those markets offer something Reading does not: direct access to a north/south interstate. This appears to have had some limiting factor on local industrial demand. Pre-2020, Reading’s absorption levels were routinely dwarfed by its prominent neighbors, and many of the largest projects to deliver in the past five years still sit vacant.
This problem might prove negligible in the near future as we undergo a massive shift in consumer spending habits. The coronavirus has accelerated the growth of e-commerce tremendously, with census data showing that online shopping has nearly doubled in the past four quarters. CoStar's latest national data shows that industrial leasing activity has returned with a roar, with national absorption closing at some of the highest levels in years.
If consumers continue shopping online boosting demand for logistics hubs across the country, Reading’s pain could be very short-lived. The strong absorption seen this year could indicate that this is in the future.
But there’s several million square feet of speculative space underway in Lehigh Valley, which offers a superior location. There are also millions of square feet of space underway in the Philadelphia and northern New Jersey markets, which could siphon demand away from Berks County as well.
This market sits on a knife’s edge and for those in Central Pennsylvania interested in industrial properties, its progress or lack thereof, will be worth monitoring in the coming months.
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