Thursday, October 29, 2020

Scranton Industrial Looks Strong Early in Fourth Quarter

By Ben Atwood CoStar Analytics

 Scranton, Pennsylvania, industrial remains on firm footing through the fourth quarter, a positive development for the region and the logistics sector as a whole.

The market’s prime location along Interstate 81 and the Pennsylvania Turnpike had made it a hot spot for logistics tenants, and there was close to 5 million square feet underway at the time of the shutdown.

In recent years, Scranton was able to pull in big-name tenants such as Amazon, Adidas and Chewy, so developers were confident enough to build most of the new supply on speculation. Millions of square feet of unleased space will always test a market, but these projects were delivered into a world radically different than the one in which they were conceived.

The shutdown has likely muted demand, and vacancies have softened by close to 2% over the past 12 months, but that’s not too surprising since close to 5 million square feet of largely speculative space delivered during that time.

Indeed, there are signs that demand remains quite healthy. Year-over-year absorption rates for the market remain close to the market’s three-year average. In the past few months, multiple major deals have closed.

In late October, 1.2 million square feet was filled at Humboldt Northwest One, a proposed project near Hazelton. Chewy signed for over 1 million square feet in the second quarter, while True Value signed for nearly 1 million square feet in June. Two manufacturers also had a pair of move-ins post-shutdown, with Cardinal Glass Manufacturing filling nearly 200,000 square feet in the second quarter, while Golden Technologies took up 100,000 square feet at the same time.

One other indication of strength is the lack of sublet space being put on the market. While some softening in local demand would be expected from the virus, particularly from troubled retailers, as of the fourth quarter, this has not happened. An October survey shows that nothing substantial, over 200,000 square feet, has been flipped to available or placed on the market since the onset of the shutdown.

Such interest in a market that often plays second fiddle to nearby Lehigh Valley is a good indication that the logistics sector remains strong and might even be strengthening through 2020. Much of the space underway in Scranton is now filled and with developers holding off through the year on major groundbreakings, a market that looked to be in a precarious position in mid-March now appears primed for the future.

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